ATOSSA THERAPEUTICS, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures   We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer) as appropriate, to allow for timely decisions regarding required disclosure.   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, our disclosure controls and procedures were effective.   Management's Report on Internal Control Over Financial Reporting   Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined under the Exchange Act in Rules 13a-15(f) and 15d-15(f)). Our internal control over financial reporting includes policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.   Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in  Internal Control — Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal  Control — Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2021. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report, which appears herein.   Remediation of material weakness     As previously disclosed, the Company had ineffective controls over the evaluation and accounting for complex financing transactions, specifically, the Company did not have sufficient technical resources to appropriately identify errors in the accounting for warrants issued in a registered offering including whether the warrants should be classified as a liability or as equity.       The control deficiency described above created a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. This material weakness resulted in a material adjustment to the classification of certain warrants issued in December 2020 from equity to a liability on the consolidated balance sheet. The classification error was corrected prior to issuance of the consolidated financial statements as of and for the year ended December 31, 2020. On January 1, 2021, the Company early adopted ASU 2020-06 which resulted in the elimination of the criteria that resulted in the warrants being classified as liabilities at December 31, 2020.    The remedial actions taken included educating and re-training control owners regarding the accounting standards related to the accounting for complex financial instruments and contracting with appropriate resources to provide accounting interpretation guidance to assist us in identifying and addressing any issues that affect our consolidated financial statements. In addition, management enhanced the accounting policy, controls and review procedures related to the accounting for complex financial instruments. Management has implemented these remedial actions to ensure that the underlying causes of the material weakness are remediated such that the existing controls operate effectively.   We tested our newly established policies, procedures and control activities designed to address the above-described material weakness, and as a result, we believe that the material weakness was remediated as of December 31, 2021.    Changes in Internal Control Over Financial Reporting      No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the year ended December 31, 2021, that has materially affected or is reasonably likely to materially affect, our disclosure controls and procedures with the exception of the material weakness remediation as described above.     41 Table of Contents     Report of Independent Registered Public Accounting Firm   Shareholders and Board of Directors Atossa Therapeutics, Inc. Seattle, Washington     Opinion on Internal Control over Financial Reporting   We have audited Atossa Therapeutics, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria .   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years then ended, and the related notes, and our report dated February 28, 2022, expressed an unqualified opinion thereon.   Basis for Opinion   The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.   Definition and Limitations of Internal Control over Financial Reporting   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.       /s/ BDO USA, LLP   Seattle, Washington February 28, 2022     42 Table of Contents     ITEM 9B. OTHER INFORMATION   None.     ITEM 9C.        DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.   Not applicable     43 Table of Contents   PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   Information regarding our executive officers is set forth in Item 1 of Part I of this Report under the caption “Executive Officers.”   The information required by this item is incorporated herein by reference to the sections entitled “Proposal No. 1 — Election of Directors,” “Beneficial Owners and Management,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Director Compensation,” “Corporate Governance” and “Board of Directors and Committees” in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2022 (the “Proxy Statement”).   ITEM 11. EXECUTIVE COMPENSATION          The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Director Compensation" and “Corporate Governance”, in our Proxy Statement.   ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS   The information required by this item is incorporated by reference to the sections entitled “Executive Compensation- Equity Compensation Plan Information" and “Beneficial Owners and Management” in our Proxy Statement.   ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   The information required by this item is incorporated by reference to the section entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance” in our Proxy Statement.   ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   The information required by this item is incorporated by reference to the sections entitled “Proposal No. 2 — Ratification of Selection of Independent Registered Public Accounting Firm” in our Proxy Statement.     PART IV   ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES   (a) The following documents are filed as a part of this 10-K:     1. Financial Statements   The following financial statements are included in Part II, Item 8 of this 10-K: Report of Independent Registered Public Accounting Firm   46 Consolidated Balance Sheets 48 Consolidated Statements of Operations 49 Consolidated Statements of Stockholders' Equity 50 Consolidated Statements of Cash Flows 51 Notes to Consolidated Financial Statements 52   2. Financial Statement Schedules   All financial statement schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.     3. Exhibits   See the Exhibit Index set forth on page 68 of this report.   ITEM 16. FORM 10-K SUMMARY   Not applicable.         44 Table of Contents       ATOSSA THERAPEUTICS, INC.   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   Audited Consolidated Financial Statements:       Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Seattle, Washington; PCAOB ID# 243 ) 46     Consolidated Balance Sheets 48     Consolidated Statements of Operations 49     Consolidated Statements of Stockholders’ Equity 50     Consolidated Statements of Cash Flows 51     Notes to Consolidated Financial Statements 52       45 Table of Contents       REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Shareholders and Board of Directors Atossa Therapeutics, Inc. Seattle, Washington     Opinion on the Consolidated Financial Statements   We have audited the accompanying consolidated balance sheets of Atossa Therapeutics, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of 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, 2021 and 2020, 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.   We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2022, expressed an unqualified opinion thereon.   Change in Accounting Principle   As discussed in Note 3 to the consolidated financial statements, the Company early adopted Accounting Standards Update No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in an Entity ’ s own Equity (Topic 815 ) on a modified retrospective basis in 2021.    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 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.   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.   46 Table of Contents   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 a 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.   Accounting for Research and Development Expenses   As disclosed in Note 3 to the consolidated financial statements, the Company expenses research and development costs as incurred, which include manufacturing expense for the Company's drugs under development, expenses associated with clinical trials and associated salaries and benefits. Tracking the progress of the clinical trials, including payments made by the Company and by third-parties, allows the Company to record the appropriate expense, prepayments, and accruals under the terms of the agreements. In addition, research and development expenses include an allocation of the CEO’s compensation based on an estimate of total hours expended on research and development activities, including his oversight of clinical trial activities.  During the year ended December 31, 2021, the Company incurred $9,210,000 of research and development expenses. As described in Note 5 to the consolidated financial statements, the Company recorded prepaid research and development expenses of $1,853,000 as of December 31, 2021.   We identified research and development expenses as a critical audit matter. When estimating research and development expenses, the Company considers several factors including an estimation of total hours that the CEO expends on research and development activities, the delivery of drug products utilized in clinical trials, clinical trial budgets, contract amendments, the progress toward completion, and the timing of payments. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.   The primary procedures we performed to address this critical audit matter included:     ● Testing management’s estimation of research and development by (i) obtaining and inspecting significant agreements, clinical trial and drug manufacturing budgets, and contract amendments, (ii) evaluating the Company’s documentation of trial progress and status, and (iii) testing a sample of transactions by comparing the costs against related invoices and agreements.       ● Testing the existence, completeness and accuracy of prepaid and accrued research and development expenses by (i) evaluating publicly available information (such as press release and public databases that track clinical trials), (ii) inquiring of clinical staff outside of finance to gain an understanding of the status of significant on-going clinical trials, (iii) testing a sample of payments made by the Company during the period of audit for clinical trial expenses that relate to future periods to verify the existence of prepaid expenses, and (iv) testing payments subsequent to year end to evaluate the completeness of accrued expenses.     ● Testing management’s allocation of CEO compensation by (i) comparing management’s accounting analysis information to source documents, (ii) agreeing compensation cost details to relevant source documents, and (iii) recalculating the percentage of compensation costs allocated to research and development.     /s/ BDO USA, LLP   We have served as the Company's auditor since 2014. Seattle, Washington February 28, 2022       47 Table of Contents         ATOSSA THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (amounts in thousands, except for par value)       As of December 31,   Assets   2021     2020   Current assets                 Cash and cash equivalents   $ 136,377     $ 39,554   Restricted cash     110       110   Prepaid expenses     2,488       1,814   Research and development tax rebate receivable     1,072       635   Other current assets     1,193       657   Total current assets     141,240       42,770                     Furniture and equipment, net     20       21   Intangible assets, net     -       13   Right-of-use asset     -       18   Other assets     2       17   Total Assets   $ 141,262     $ 42,839                     Liabilities and Stockholders' Equity                 Current liabilities                 Accounts payable   $ 1,717     $ 1,589   Accrued expenses     204       93   Payroll liabilities     1,184       964   Common stock warrant liability     -       13,003   Lease liability     -       18   Other current liabilities     21       4   Total current liabilities     3,126       15,671                     Total Liabilities     3,126       15,671                     Commitments and contingencies (Note 13)                                       Stockholders' equity                 Preferred stock - $0.001 par value; 10,000 shares authorized; 1 share issued and outstanding as of December 31, 2021 and December 31, 2020, respectively     -       -   Additional paid-in capital - Series B convertible preferred stock     582       621   Common stock - $0.18 par value; 175,000 shares authorized; 126,624 and 47,550 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively     22,792       8,559   Additional paid-in capital     243,996       129,887   Accumulated deficit     ( 129,234 )     ( 111,899 ) Total Stockholders' Equity     138,136       27,168   Total Liabilities and Stockholders' Equity   $ 141,262     $ 42,839       The accompanying notes are an integral part of these consolidated financial statements.         48 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except for per share amounts)     For the Year Ended December 31,                         2021     2020   Operating expenses                 Research and development   $ 9,210     $ 6,608   General and administrative     11,311       7,999   Total operating expenses     20,521       14,607   Operating loss     ( 20,521 )     ( 14,607 ) Change in fair value of common stock warrants     -       ( 2,333 ) Warrant financing expense     -       ( 939 ) Other (expense) income, net     ( 85 )     51   Loss before income taxes     ( 20,606 )     ( 17,828 ) Income taxes     -       -   Net loss   $ ( 20,606 )   $ ( 17,828 ) Deemed dividend attributable to preferred stock     -       ( 4,503 ) Net loss applicable to common shareholders   $ ( 20,606 )   $ ( 22,331 ) Loss per common share - basic and diluted   $ ( 0.18 )   $ ( 1.97 ) Weighted average shares outstanding - basic and diluted     116,950       11,309       The accompanying notes are an integral part of these consolidated financial statements.               49 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (amounts in thousands)       Series C Convertible Preferred Stock     Series B Convertible Preferred Stock     Common Stock                                       Additional                     Additional                     Additional             Total       Shares     Amount     Paid-in Capital     Shares     Amount     Paid-in Capital     Shares     Amount     Paid-in Capital     Accumulated Deficit     Stockholders' Equity   Balance at December 31, 2019     -     $ -     $ -       1     $ -     $ 671       9,131     $ 1,644     $ 104,912     $ ( 94,071 )   $ 13,156   Issuance of common stock, net of issuance costs of $475     -       -       -       -       -       -       1,328       239       4,426       -       4,665   Issuance of common stock and warrants, net of issuance costs of $1,890     -       -       -       -       -       -       31,575       5,684       23,991       -       29,675   Allocation of common stock proceeds to warrant liability     -       -       -       -       -       -       -       -       ( 8,196 )     -       ( 8,196 ) Issuance of Series C convertible preferred stock and warrants, net of issuance costs of $260     5       -       5,165       -       -       -       -       -       -       -       5,165   Allocation of Series C convertible preferred stock to beneficial conversion feature and warrant liability     -       -       ( 4,243 )     -       -       -       -       -       1,769       -       ( 2,474 ) Deemed dividend on Series C convertible preferred stock     -       -       4,503       -       -       -       -       -       ( 4,503 )     -       -   Conversion of Series B convertible preferred stock to common stock     -       -       -       -       -       ( 50 )     15       2       48       -       -   Conversion of Series C convertible preferred stock to common stock     ( 5 )     -       ( 5,425 )     -       -       -       5,425       976       4,449       -       -   Common stock issued for option exercises     -       -       -       -       -       -       225       41       501       -       542   Shares withheld related to cashless exercise of options and taxes     -       -       -       -       -       -       ( 149 )     ( 27 )     ( 529 )     -       ( 556 ) Compensation cost for stock options granted     -       -             -       -                             3,019       -       3,019   Net loss     -       -       -       -       -       -       -       -       -       ( 17,828 )     ( 17,828 ) Balance at December 31, 2020     -       -       -       1       -       621       47,550       8,559       129,887       ( 111,899 )     27,168   Cumulative effect of adopted accounting standard     -       -       -       -       -       -       -       -       9,732       3,271       13,003   Issuance of common stock and warrants, net of issuance costs of $5,493     -       -       -       -       -       -       41,211       7,418       62,250       -       69,668   Issuance of common stock upon warrant exercise     -       -       -       -       -       -       37,451       6,741       37,077       -       43,818   Conversion of Series B convertible preferred stock to common stock     -       -       -       -       -       ( 39 )     11       2       37       -       -   Common stock issued for option exercise     -       -       -       -       -       -       699       126       1,598       -       1,724   Shares withheld related to cashless exercise of options and taxes     -       -       -       -       -       -       ( 298 )     ( 54 )     ( 1,852 )     -       ( 1,906 ) Compensation cost for stock options granted     -       -       -       -       -       -       -       -       5,267       -       5,267   Net loss     -       -       -       -       -       -       -       -       -       ( 20,606 )     ( 20,606 ) Balance at December 31, 2021     -     $ -     $ -       1     $ -     $ 582       126,624     $ 22,792     $ 243,996     $ ( 129,234 )   $ 138,136       The accompanying notes are an integral part of these consolidated financial statements.         50 Table of Contents     ATOSSA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands)        Year Ended December 31,       2021     2020   CASH FLOWS FROM OPERATING ACTIVITIES                 Net loss   $ ( 20,606 )   $ ( 17,828 ) Adjustments to reconcile net loss to net cash used in operating activities                 Compensation cost for stock options granted     5,267       3,019   Disposal of assets     -       32   Depreciation and amortization     23       47   Change in fair value of common stock warrant liability     -       2,333   Warrant financing expense     -       939   Changes in operating assets and liabilities:                 Prepaid expenses     ( 674 )     ( 952 ) Research and development tax rebate receivable     ( 437 )     105   Other assets     ( 521 )     ( 631 ) Accounts payable     128       1,295   Accrued expenses     111       15   Payroll liabilities     220       64   Other current liabilities     17       ( 8 ) Net cash used in operating activities     ( 16,472 )     ( 11,570 )                   CASH FLOWS FROM INVESTING ACTIVITY                 Purchase of furniture and equipment     ( 9 )     ( 9 ) Net cash used in investing activities     ( 9 )     ( 9 )                   CASH FLOWS FROM FINANCING ACTIVITY                 Proceeds from issuance of common stock, net of issuance costs     -       4,665   Proceeds from issuance of common stock and warrants, net of issuance costs     69,668       28,954   Proceeds from issuance of Series C convertible preferred stock and warrants, net of issuance costs     -       4,947   Proceeds from exercise of employee stock options     391       -   Payment of taxes related to net-exercise of employee stock options     ( 573 )     ( 14 ) Proceeds from exercise of warrants     43,818       -   Net cash provided by financing activities     113,304       38,552                     NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH     96,823       26,973   CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE     39,664       12,691   CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE   $ 136,487     $ 39,664                     SUPPLEMENTAL DISCLOSURES                 Reconciliation of cash, cash equivalents and restricted cash                 Cash and cash equivalents   $ 136,377     $ 39,554   Restricted cash     110       110   Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows   $ 136,487     $ 39,664                     NON-CASH INVESTING AND FINANCING ACTIVITIES                 Reclassification of warrant liability to equity upon adoption of accounting standard   $ 13,003     $ -   Common stock issued upon cashless exercise of stock options   $ 1,333     $ 541   Deemed dividend attributable to preferred stock   $ -     $ 4,503   Conversion of Series B convertible preferred stock to common stock   $ 39     $ 50   Conversion of Series C convertible preferred stock to common stock   $ -     $ 5,425       The accompanying notes are an integral part of these consolidated financial statements.       51 Table of Contents     NOTE 1: NATURE OF OPERATIONS   On January 6, 2020, we changed our corporate name from Atossa Genetics Inc. to Atossa Therapeutics, Inc. Atossa Therapeutics, Inc. (the Company) was incorporated on April 30, 2009, in the State of Delaware. The Company was initially formed to develop and market medical devices, laboratory tests and therapeutics to address breast health conditions. The Company is currently focused on development of its pharmaceuticals for the treatment of the novel coronavirus (COVID- 19 ), breast cancer and other breast conditions. The Company’s fiscal year ends on December 31.   Impact of the Novel Coronavirus   The continued spread of the COVID- 19 pandemic is affecting the U.S. and global economies and may affect the Company’s operations and those of third parties on which the Company relies, including causing possible disruptions in the supply of the Company’s Endoxifen, AT- H201, AT- 301 and the pace of enrollment in our clinical trials. In addition, the COVID- 19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. Additionally, while the potential economic impact brought by, and the duration of, the COVID- 19 pandemic is difficult to assess or predict, the impact of the COVID- 19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID- 19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, however, we have not experienced a significant delay in the enrollment or the drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT- 301 and AT- H201.  In recent weeks the number of reported cases of COVID- 19 has declined in many countries. If this trend continues it may be difficult to enroll participants in our COVID- 19 clinical studies.     NOTE 2: LIQUIDITY AND CAPITAL RESOURCES   The Company has incurred net losses and negative operating cash flows since inception. For the year ended December  31, 2021, the Company recorded a net loss of $ 20,606  and used $ 16,472  of cash in operating activities. As of December 31, 2021, the Company had $ 136,377  in cash and cash equivalents and working capital of $ 138,114 . The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and believes it will need to continue to raise substantial additional capital to accomplish its business plan over the next several years. Management believes its currently available funding, including the funds received from warrant exercises and the issuance of common stock and warrants with net proceeds of $ 113,486  during  2021, will be sufficient to finance the Company’s operations for at least one  year from the date these consolidated financial statements are issued. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of public or private equity offerings, debt financings or other sources, including potential corporate collaborations, licenses and other similar arrangements. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans.        52 Table of Contents       NOTE 3: SUMMARY OF ACCOUNTING POLICIES   Basis of Presentation:      The accompanying consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) and in accordance with accounting principles generally accepted in the United States of America (GAAP). The accompanying consolidated financial statements include the financial statements of Atossa Therapeutics, Inc. and its wholly-owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation. All amounts have been presented in thousands, except for par value and per share data.     Use of Estimates:   The preparation of 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 financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.   Recently Issued Accounting Pronouncements:   In November 2021, the Financial Accounting Standards Board (FASB)  issued Accounting Standards Update (ASU) 2021 - 10, Government Assistance (Topic 832 ) – Disclosures by Business Entities about Government Assistance , which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy (for example, IFRS guidance in IAS 20 or guidance on contributions for not -for-profit entities in ASC 958 - 605 ). For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The new guidance is effective for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.   On May 3,  2021, the FASB issued ASU  No. 2021 - 04,   Issuer ’ s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options  — a consensus of the FASB Emerging Issues Task Force. The ASU provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. The guidance will be effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.   Recently Adopted Accounting Pronouncements:    On January 1, 2021, the Company early adopted ASU  No. 2020 - 06, Debt – Debt with Conversion and Other Options (Topic 470 ) and Derivative Hedging - Contracts in an Entity's Own Equity   (Topic 815 ), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The guidance is effective for fiscal years beginning on or after December 15, 2023, with early adoption permitted, but not earlier than fiscal years beginning after December 15, 2020. The amendments in ASU No. 2020 - 06 removed the requirement that an instrument or embedded feature must permit settlement in unregistered shares in order to qualify for equity classification. The removal of this criterion allowed the Company to reclassify the common stock liability to equity upon adoption. The Company implemented this ASU using the modified retrospective approach. Upon adoption, the Company recorded a cumulative adjustment to beginning Stockholders' Equity in the amount of $ 13,003  to reclassify the common stock warrant liability to accumulated deficit and additional paid-in capital.     The guidance removes the liability and equity separation models for convertible instruments with a cash conversion feature or beneficial conversion feature. As a result, companies will more likely account for convertible debt instruments wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e. as a single unit of account). In addition, the guidance simplifies the settlement assessment that issuers perform to determine whether a contract in their own equity qualifies for equity classification. Finally, the guidance requires entities to use the if-converted method to calculate earnings per share for all convertible instruments.   The cumulative effect of initially applying the new standard was recognized as an adjustment to accumulated deficit. Upon the adoption of the new standard, the Company recognized the following adjustments:        Ending Balance as of December 31, 2020     ASU 2020-06 Adjustments     Beginning Balance as of January 1, 2021   Warrant liability   $ 13,003     $ ( 13,003 )   $ -   Additional paid-in capital     129,887       9,732       139,619   Accumulated deficit     ( 111,899 )     3,271       ( 108,628 )   The $ 3,271 adjustment to accumulated deficit includes warrant financing expenses of $ 939  and the change in fair value of common stock warrants of $ 2,333  subsequent to initial recognition.   On January 1, 2021, the Company adopted ASU 2019 - 12, Income Taxes, (Topic 740 ): Simplifying the Accounting for Income Taxes , which amends the existing guidance relating to accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of U.S. GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. This ASU did not have a material effect on the consolidated financial statements.       53 Table of Contents       Research and Development   Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for the Company's drugs under development, expenses associated with clinical trials and associated salaries and benefits. The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued expenses, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid expense or accrued expense balances at the end of any reporting period. Actual results could differ from the Company’s estimates.   R&D expenses also include an allocation of the CEO's salary and related benefits including bonus and non-cash stock-based compensation expense based on an estimate of total hours expended on research and development activities. The Company's CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activity.   Income Taxes   The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.   Cash and Cash Equivalents   Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.     Furniture and Equipment   Furniture and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When furniture and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations.   Depreciation is computed using the straight-line method over the estimated useful lives ranging from three to  five years.   Furniture and equipment amounted to $ 36 and $ 186 at December 31, 2021  and 2020, respectively. Accumulated depreciation was $ 16 and $ 165 at December 31, 2021, and 2020, respectively. Depreciation expense for the years ended December 31, 2021  and 2020, was $ 10  and $ 19 , respectively.    The Company periodically evaluates the carrying value of long-lived assets to be held and used and, if necessary, records impairment losses when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-loved assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. For the years ended December 31, 2021 and 2020, no impairment of furniture and equipment was recorded.   Fair Value Measurements   The Company records financial assets and liabilities measured on a recurring and non-recurring basis as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. These fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3  inputs are unobservable inputs based on the Company's assumptions used to measure assets and liabilities at fair value. An asset or liability's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Also refer to Note  8.       54 Table of Contents     Intangible Assets   Intangible assets consist of intellectual property and software acquired. Intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets might not be recoverable. Impairment losses must be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the assets. Estimating future cash flows related to an intangible asset involves significant estimates and assumptions. If our assumptions are not correct, there could be an impairment loss or, in the case of a change in the estimated useful life of the asset, a change in amortization expense.   No impairment charges were recorded during the years ended December 31, 2021, or December 31, 2020.   Amortization of intangible assets is computed using the straight-line method over the estimated useful lives ranging from three to ten years.   Intangible assets were fully amortized as of December 31, 2021. At December 31, 2020, intangible assets amounted to $ 54 . Accumulated amortization was $ 41  at December 31, 2020. Amortization expense for the years ended December 31, 2021  and 2020, was $ 13  and $ 28 , respectively.   Leases    The Company evaluates all contractual agreements at inception to determine if they contain a lease. Lease liabilities are measured at present value of lease payments not yet paid, using a discounted cash flow model that requires the use of a discount rate, or incremental borrowing rate. The Company does not record right-of-use assets or operating lease liabilities on leases with initial terms of 12 months or less. All Company leases are short term in duration; therefore  no Right of Use Asset or Liability are recorded as of December 31, 2021.   Stock-based Payments   The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense is based on the estimated grant date fair value and is recognized as an expense over the requisite service period.  The Company has made a policy election to recognize forfeitures when they occur.   The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of the stock options, the expected life of the options, an expectation regarding future dividends on the Company’s common stock, and estimation of an appropriate risk-free interest rate. The Company’s expected common stock price volatility assumption is based upon the historical volatility of our stock price. The Company has elected the simplified method for the expected life assumption for stock option grants, which averages the contractual term of the options of ten years with the vesting term, typically one to four years, as the Company does not have sufficient history of option exercise experience. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options.     55 Table of Contents     NOTE 4: RESTRICTED CASH   The Company's restricted cash balance of $ 110  as of December 31, 2021  and 2020, consists entirely of cash pledged as security for the Company’s issued commercial credit cards.       NOTE 5: PREPAID EXPENSES   Prepaid expenses consisted of the following:       December 31,     December 31,       2021     2020   Prepaid research and development   $ 1,853     $ 1,216   Prepaid insurance     461       418   Professional services     124       128   Retainer and security deposits     14       14   Prepaid rent     5       5   Other     31       33   Total prepaid expenses   $ 2,488     $ 1,814         NOTE 6: RESEARCH AND DEVELOPMENT TAX REBATE RECEIVABLE      On May 23, 2017, Atossa formed a wholly-owned subsidiary in Australia called Atossa Genetics AUS Pty Ltd. The purpose of this subsidiary is to perform R&D activities including our Phase 1 and Phase 2 Endoxifen and COVID- 19 clinical trials. Australia offers an R&D cash rebate of $0.435 per dollar spent on qualified R&D activities incurred in the country. During the years ended December  31, 2021  and December 31, 2020, the Company incurred qualified R&D expenses in Australia of $ 1,251  and $ 1,429 , respectively. At December 31, 2021  and December 31, 2020, we had a total R&D rebate receivable of $ 1,072  and $ 635 , respectively. For the years ended December 31, 2021 and 2020, the Company collected R&D cash rebates of $ 0  and $ 850 , respectively.     The Company had realized (losses) and gains on foreign currency exchange during the years ended December 31, 2021 and December 31, 2020, of $ 72  and $ 42 , respectively, which is included in Other (expense) income, net in the Consolidated Statements of Operations.      NOTE 7: PAYROLL LIABILITIES   Payroll liabilities consisted of the following:       December 31,     December 31,       2021     2020   Accrued bonuses   $ 894     $ 690   Accrued vacation     183       171   Accrued payroll     107       103   Total payroll liabilities   $ 1,184     $ 964         56 Table of Contents     NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS   Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.   The fair value hierarchy is broken down into the three input levels summarized below:   ● Level 1 —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.   ● Level 2 —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the- counter derivatives.   ● Level 3 —Valuations based on unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.     Warrants issued in the December 11, 2020 offering and December 28, 2020 overallotment closing, which are discussed further in Note 9, contained provisions that may  require the Company to settle the warrants in cash in an event outside the Company’s control and are therefore accounted for as liabilities, with changes in the fair values included in net loss for the respective periods. Because some of the inputs to the valuation model were either not observable or were not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability was classified as Level 3 in the fair value hierarchy.      The following tables present the Company’s fair value hierarchy for all its financial assets and liabilities, by major security type, measured at fair value on a recurring basis:   December 31, 2021   Estimated Fair Value     Level 1     Level 2     Level 3   Assets:                                 Money market account   $ 51,796     $ 51,796     $ -     $ -                                                                       December 31, 2020   Estimated Fair Value     Level 1     Level 2     Level 3   Assets:                                 Money market account   $ 1,789     $ 1,789     $ -     $ -   Liabilities:                                 Common stock warrant liability   $ 13,003     $ -     $ -     $ 13,003      The following table summarizes the changes in the Company’s Level 3 warrant liability for the year ended December 31, 2021:             Warrant Liability         Beginning balance   $ 13,003   Reclassification of equity upon adoption of accounting standard     ( 13,003 ) Issuance of warrants     -   Change in fair value     -   Ending balance   $ -             57 Table of Contents     NOTE 9: STOCKHOLDERS’ EQUITY   The Company is authorized to issue a total of 185,000 shares of stock consisting of 175,000 shares of common stock, par value $ 0.18 per share, and 10,000 shares of preferred stock, par value $ 0.001 per share. The Company has designated 750 shares of Series A junior participating preferred stock, par value $ 0.001 per share, 4 shares of Series A convertible preferred stock, par value $ 0.001 per share, 25 shares of Series B convertible preferred stock, par value $ 0.001 and 20  shares of Series C convertible preferred stock, par value $ 0.001 per share, through the filings of certificates of designation with the Delaware Secretary of State. No shares of Series A junior participating preferred stock, no shares of Series A convertible preferred stock and no shares of Series C convertible preferred stock are outstanding as of December  31, 2021 and December 31, 2020.   On May 19, 2014, the Company adopted a stockholder rights agreement which provides that all stockholders of record on May 26, 2014, received a non-taxable distribution of one preferred stock purchase right for each share of the Company’s common stock held by such stockholder. Each right is attached to and trades with the associated share of common stock. The rights will become exercisable only if one of the following occurs: ( 1 ) a person becomes an “Acquiring Person” by acquiring beneficial ownership of 15 % or more of the Company’s common stock (or, in the case of a person who beneficially owned 15% or more of the Company’s common stock on the date the stockholder rights agreement was executed, by acquiring beneficial ownership of additional shares representing 2.0 % of the Company’s common stock then outstanding (excluding compensatory arrangements)), or ( 2 ) a person commences a tender offer that, if consummated, would result in such person becoming an Acquiring Person. If a person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person and certain related parties, to purchase a number of shares of the Company’s common stock with a market value that equals twice the exercise price of the right. The initial exercise price of each right is $ 15.00 , so each holder (other than the Acquiring Person and certain related parties) exercising a right would be entitled to receive $ 30.00 worth of the Company’s common stock. If the Company is acquired in a merger or similar business combination transaction at any time after a person has become an Acquiring Person, each holder of a right (other than the Acquiring Person and certain related parties) will be entitled to purchase a similar amount of stock of the acquiring entity.    2021 Financing Transactions   On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 23,850  shares of Company common stock, par value $ 0.18 per share and warrants to purchase 17,888  shares of common stock. The combined purchase price for one share of common stock and a warrant to purchase 0.75 shares of common stock was $ 1.055 . Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5 -year anniversary of the date of issuance and have an exercise price of $ 1.055 per share. The common stock and warrants have been registered under the Securities Act of 1933, as amended. The Company paid the placement agent a cash fee of 7 % of the aggregate gross proceeds and reimbursed the placement agent for expenses, including legal fees, up to $ 45 . The offering closed on January 8, 2021 with net proceeds to the Company from the offering of $ 23,300  after deducting fees and expenses.   On March  22, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 17,361 shares of our common stock, par value $ 0.18 per share. Concurrently with the offering, and pursuant to the purchase agreement, the Company also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 13,021  shares of common stock. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock is $ 2.88 . Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5 -year anniversary of the date of issuance. Subsequent to the issuance of the warrants, the Company filed a registration statement on Form S- 3 (File No. 333 - 255411 ) to cover the sale of an aggregate of 13,021  shares of common stock issuable upon exercise of the warrants which was declared effective by the SEC on  April 29, 2021. The Company paid the placement agent a cash fee of 7 % of the aggregate gross proceeds of the offering and the private placement. The Company also agreed to reimburse the placement agent for expenses, including the legal fees, up to $ 45 . The net proceeds to the Company from the offering and the private placement are $ 46,400 , after deducting fees and expenses.   2021   Warrants     The terms and conditions of the warrants included in the 2021 offerings are as follows:   Exercisability . Each warrant is exercisable at any time and will expire 4.5 -years from the date of issuance. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below.   The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our assets, or other similar transaction, the holders of warrants shall, at the option of the Company, be required to exercise the warrants immediately prior to the closing of the transaction, or such warrants shall automatically expire. Upon such exercise, the holders of warrants shall participate on the same basis as the holders of common stock in connection with the transaction.       58 Table of Contents   Cashless Exercise . If at any time there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.   Exercise Price . Each warrant represents the right to purchase one share of common stock at an exercise price of $1.055  per share for the January 2021 financing or $2.88 per share for the March  2021 financing. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in no event shall the limitation exceed 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.   Transferability . Subject to applicable laws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax liability that may arise as a result of the transfer.   Exchange Listing . We do not intend to apply to list the warrants on any securities exchange or recognized trading system.   Rights as Stockholder . Except as set forth in the warrant, the holder of a warrant, solely in such holder’s capacity as a holder of a warrant, will not be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.   2020 Equity Distribution Agreements     On February 7, 2020, Atossa Therapeutics, Inc. entered into an equity distribution agreement with Oppenheimer & Co. Inc. (Oppenheimer), acting as sales agent relating to the “at-the-market” (the Oppenheimer ATM) offering and sale by Atossa of common shares, par value $ 0.18 per share, having an aggregate gross sales price of up to $ 5,000 . Sales of the shares were made at Atossa’s sole discretion and by means of ordinary brokers’ transactions through the facilities of the Nasdaq Capital Market at market prices, in block transactions or as otherwise agreed between Atossa and Oppenheimer. The distribution agreement provided that Oppenheimer was entitled to a commission of 3.0 % of the gross offering proceeds of the shares sold pursuant to the distribution agreement and reimbursement for certain specified expenses. Atossa had  no obligation to offer or sell any shares under the agreement and could at any time suspend offers and sales under the agreement. Oppenheimer could also suspend or terminate the offering of shares being made through them upon proper notice to the Company. During the year ended December 31, 2020, the Company sold 1,244  shares of common stock under the Oppenheimer ATM, for net proceeds of $ 4,686 . Total issuance costs for the year ended December 31, 2020, were $ 314 .    On September  25, 2020, Atossa Therapeutics, Inc. entered into an equity distribution agreement with Maxim Group, LLC (Maxim), acting as sales agent relating to the "at-the-market" offering and sale by Atossa of common shares, par value $ 0.18 per share, having an aggregate gross sales price of up to $ 10,000 . Sales of the shares, if any, will be made at Atossa’s sole discretion and by means of ordinary brokers’ transactions through the facilities of the Nasdaq Capital Market at market prices, in block transactions or as otherwise agreed between Atossa and Maxim. The distribution agreement provides that Maxim will be entitled to a commission of 3.0 % of the gross offering proceeds of the shares sold pursuant to the distribution agreement and reimbursement for certain specified expenses. Atossa has no obligation to offer or sell any shares under the agreement and may at any time suspend offers and sales under the agreement. Maxim could also suspend or terminate the offering of common stock being made through them upon proper notice to the Company. Sales under the ATM with Maxim began in October. During the year ended December 31, 2020, the Company sold 84  shares of common stock under the Maxim ATM for gross proceeds to the Company of $ 140 . Total issuance costs for the year ended December 31, 2020, were $ 161 . On March 21, 2021, we terminated the equity distribution agreement and as a result  no further sales of common stock will be made thereunder.     2020 Offering of   Consisting of Common Stock, Series C Convertible Preferred Stock and Warrants   On December 8, 2020, the Company entered into an underwriting agreement with Maxim Group, LLC, pursuant to which the Company agreed to issue and sell registered units consisting of an aggregate of: (i) 14,575  shares of the Company’s common stock at $ 1.00 per share; (ii) 5 shares of Series C convertible preferred stock, par value $ 0.001 per share at $ 1,000.00 per share and (iii) warrants convertible into up to 15,000  shares of common stock. The warrants were immediately exercisable at a price of $ 1.00 per share of common stock and expire four  years from the date of issuance. On December 28, 2020, the Company also closed on the overallotment provision of the underwriting agreement which included the sale of an additional 3,000 shares of common stock and 2,250  warrants. Net proceeds in total were $ 20,976  after deducting expenses relating to the offering of $ 2,024 , including dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants. Proceeds of $ 16,750  net of issuance costs of $ 825  have been included in the statement of stockholders' equity under the caption Issuance of common stock and warrants. Proceeds from the sale of common stock and warrants of $ 8,196  have been allocated to the common stock warrant liability. Proceeds of $ 5,165 , net of issuance costs of $ 260  have been included in the statement of stockholders' equity under the caption Issuance of Series C convertible preferred stock and warrants. Proceeds from the sale of Series C convertible preferred stock and warrants of $ 2,474  have been allocated to the common stock warrant liability. Issuance costs of $ 939  that were allocated to the warrant liabilities were expensed during 2020.   Accounting Treatment   The Company allocated the proceeds from the sale of the common stock and warrant units and preferred stock and warrant units to the separate securities issued. The Company determined that, on the date of issuance, the warrants include provisions that could require net-cash settlement and therefore, the warrants should be accounted for as liabilities. At the end of December 31, 2020, the changes in fair value of the warrants during the period were recorded in non-operating expense in the consolidated statement of operations.  The common stock warrant liability was reclassified to accumulated deficit and additional paid-in-capital on January 1, 2021, upon adoption of ASU No. 2020 - 06.  See Note 3. All warrants outstanding as of December 31, 2021, are classified as equity.   The Company allocated the amount representing the fair value of the warrants at the date of issuance separately first to the warrant liability and recorded the remaining proceeds as common stock, in the case of the common stock and warrant units, or as Series C convertible preferred stock, in the case of the preferred stock and warrant units. Due to the allocation of a portion of the proceeds to the warrants, the Series C convertible preferred stock contained a beneficial conversion feature upon issuance, which was recorded in the amount of $ 1,769  based on the intrinsic value of the beneficial conversion feature. The discount on the Series C convertible preferred stock of $ 2,474  caused by allocation of the proceeds to the warrant and the issuance costs allocated to the convertible preferred stock of $ 260  were recorded as a deemed dividend upon issuance of the Series C convertible preferred stock. As a result, total deemed dividends of $ 4,503 were recorded upon issuance of the Series C convertible preferred stock, which is reflected as an addition to net loss in the consolidated statement of operations to arrive at net loss applicable to common shareholders.   59 Table of Contents         Series C Convertible Preferred Stock .   The terms and provisions of our Series C convertible preferred stock are:   Conversion. Each share of Series C convertible preferred stock is convertible at our option at any time on or after the first anniversary of the closing of the rights offering or at the option of the holder at any time, into the number of shares of our common stock determined by dividing the $ 1,000 stated value per share of the Series C convertible preferred stock by a conversion price of $ 1.00 per share. In addition, the conversion price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations or reclassifications. Subject to limited exceptions, a holder of the Series C convertible preferred stock will not have the right to convert any portion of the Series C convertible preferred stock to the extent that, after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to its conversion.   Fundamental Transactions. In the event we effect certain mergers, consolidations, sales of substantially all of our assets, tender or exchange offers, reclassifications or share exchanges in which our common stock is effectively converted into or exchanged for other securities, cash or property, we consummate a business combination in which another person acquires 50 % of the outstanding shares of our common stock, or any person or group becomes the beneficial owner of 50 % of the aggregate ordinary voting power represented by our issued and outstanding common stock, then, upon any subsequent conversion of the Series C convertible preferred stock, the holders of the Series C convertible preferred stock will have the right to receive any shares of the acquiring corporation or other consideration it would have been entitled to receive if it had been a holder of the number of shares of common stock then issuable upon conversion in full of the Series C convertible preferred stock.   Dividends. Holders of Series C convertible preferred stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of common stock   Voting Rights. Except as otherwise provided in the certificate of designation or as otherwise required by law, the Series C convertible preferred stock has no voting rights.   Liquidation Preference . Upon our liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series C convertible preferred stock will be entitled to receive out of our assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series C convertible preferred stock were fully converted (disregarding for such purpose any conversion limitations under the certificate of designation) to common stock, which amounts shall be paid pari passu with all holders of common stock.   Redemption Rights. We are not obligated to redeem or repurchase any shares of Series C convertible preferred stock. Shares of Series C convertible preferred stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous provisions.   2020   Liability Warrants     The terms and conditions of the warrants included in the December 11, 2020 offering and exercise of related overallotment option are as follows:   Exercisability . Each warrant is exercisable at any time and will expire  four years from the date of issuance. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below.   The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split or, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our assets, or other similar transaction, the holders of warrants shall, at the option of the Company, be required to exercise the warrants immediately prior to the closing of the transaction, or such warrants shall automatically expire. Upon such exercise, the holders of warrants shall participate on the same basis as the holders of common stock in connection with the transaction.   Cashless Exercise . If at any time there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise. The form of the warrant does not explicitly state that the warrants will not be settled in cash.      60 Table of Contents   Exercise Price . Each warrant represents the right to purchase one share of common stock at an exercise price of $ 1.00  per share. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in no event shall the limitation exceed 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.   Transferability . Subject to applicable laws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax that liability that may arise as a result of the transfer.   Exchange Listing . We do not intend to apply to list the warrants on any securities exchange or recognized trading system.   Rights as Stockholder . Except as set forth in the warrant, the holder of a warrant, solely in such holder’s capacity as a holder of a warrant, will not be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.   The fair value of liability warrants issued during the year ended December 31, 2020, was calculated using the Black-Scholes option-pricing model applying the following assumptions:   Initial Valuation         Common stock price   $ 0.87 - 0.89   Exercise price   $ 1.00   Risk-free interest rate     0.28 % Expected term   4.0 years   Dividend yield     -   Expected volatility     107 %- 124 %   December 31, 2020 Valuation         Common stock price   $ 0.95   Exercise price   $ 1.00   Risk-free interest rate     0.27 % Expected term   4.0 years   Dividend yield     -   Expected volatility     127 %   2020 Offering Consisting of Common Stock and Warrants   On December 17, 2020, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 14,000  shares of Company common stock. Concurrently with the offering, the Company also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 10,500  shares of common stock, which represents 75 % of the shares of common stock sold in the offering. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of Common Stock was $ 1.00 . The warrants expire 4.5 years from the anniversary of the date of issuance. The offering closed on December 21, 2020 with net proceeds of $ 12,925 , after deducting expenses relating to the offering $ 1,075 , including dealer-manager fees and expenses, and excluding any proceeds received upon exercise of any warrants. The net proceeds, net of issuance costs have been included in the statement of stockholders' equity under the caption Issuance of common stock and warrants.    2020   Warrants     The terms and conditions of the warrants included in the December 21, 2020, offerings are as follows:   Exercisability . Each warrant is exercisable at any time and will expire 4.5 years from the date of issuance. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below.   The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split or, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our assets, or other similar transaction, the holders of warrants shall, at the option of the Company, be required to exercise the warrants immediately prior to the closing of the transaction, or such warrants shall automatically expire. Upon such exercise, the holders of warrants shall participate on the same basis as the holders of common stock in connection with the transaction.   Cashless Exercise . If at any time there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.   Exercise Price . Each warrant represents the right to purchase one share of common stock at an exercise price of $ 1.00  per share. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99 % of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in no event shall the limitation exceed 9.99 % of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.   61 Table of Contents       Transferability . Subject to applicable laws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax that liability that may arise as a result of the transfer.   Exchange Listing . We do not intend to apply to list the warrants on any securities exchange or recognized trading system.   Rights as Stockholder . Except as set forth in the warrant, the holder of a warrant, solely in such holder’s capacity as a holder of a warrant, will not be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.      Warrants Outstanding   As of December  31, 2021, warrants to purchase 22,277  shares of common stock were outstanding including:         Outstanding Warrants to Purchase Shares     Exercise Price   Expiration date May 2018 warrants     762     $ 4.05   May 30, 2022 December 2020 warrants     6,490     $ 1.00   December 11 2024-June 21, 2025 January 2021 warrants     4,500     $ 1.055   July 8, 2025 March 2021 warrants     10,525     $ 2.88   September 22, 2025       22,277               Warrant Activity   During 2021, the Company received $ 43,818  from the exercises of warrants. The 2021 warrant exercises resulted in the reduction of 37,451  warrants, and the issuance of  37,451  shares of common stock. There were no warrant exercises during 2020.   Conversion of Convertible Preferred Stock   During the years ended December 31, 2021 and December 31, 2020,  certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 0.039  and 0.050 shares, respectively, into  11  and 15  shares, respectively, of the Company's common stock based on the conversion ratio of  284 shares of common stock for each share of Series B convertible preferred stock.     During the year ended December 31, 2020, certain holders of the Series C convertible preferred stock exercised their conversion option and converted an aggregate of  5.425 shares, into 5,425  shares of the Company's common stock based on the conversion ratio of 1,000 shares of common stock for each share of Series C convertible preferred stock.     62 Table of Contents     NOTE 10: NET LOSS PER SHARE    The Company follows the  two -class method when computing net loss per share as the Company has issued warrants and preferred stock that meet the definition of participating securities. The  two -class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The  two -class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.   Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividends. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of potential future exercises of outstanding stock options and common stock warrants. Because the inclusion of potential common shares would be anti-dilutive for all periods presented, they have been excluded from the calculation.     The Company’s common stock warrants and preferred stock contractually entitles the holders of such securities to participate in dividends but do not contractually require the holders of such securities to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the years ended December 31, 2021, and 2020.      The following table summarizes the Company’s calculation of net loss per common share:       Year Ended December 31,       2021     2020   Numerator                 Net loss   $ ( 20,606 )   $ ( 17,828 ) Deemed dividend attributable to preferred stock     -       ( 4,503 ) Net loss attributable to common shareholders   $ ( 20,606 )   $ ( 22,331 ) Denominator                 Weighted average common shares outstanding used to compute net loss per share, basic and diluted     116,950       11,309   Net loss per share of common stock, basic and diluted:   $ ( 0.18 )   $ ( 1.97 )   The following table sets forth the weighted average number of potential common shares excluded from the calculation of net loss per diluted share, because including them would be anti-dilutive:        Year Ended December 31,       2021     2020   Options to purchase common stock     9,036       6,138   Series B convertible preferred stock     171       227   Warrants to purchase common stock     24,144       2,271         33,351       8,636         63 Table of Contents     NOTE 11: INCOME TAXES   The Company accounts for income taxes using the asset and liability method, under which deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.   The Company did not record an income tax benefit for its losses incurred for the years ended  December 31, 2021  or 2020, due to uncertainty regarding utilization of its net operating loss carryforwards and due to its history of losses. The benefit for income taxes differs from the benefit computed by applying the federal statutory rate to loss before income taxes as follows:                                           Year Ended December 31,       2021     2020   Expected federal income tax benefit   $ ( 4,327 )   $ ( 3,744 ) Stock compensation     -       26   Other permanent items     81       1,082   Other deferred items     ( 100 )     ( 350 ) Recognition of foreign NOLs     ( 557 )     -   Effect of change in valuation allowance     4,903       2,986   Actual federal income tax benefit   $ -     $ -                           The components of net deferred tax assets and liabilities are as follows:                         As of December 31,       2021     2020   Deferred tax assets                 Obsolete inventory   $ -     $ 22   Accrued vacation     38       36   Stock-based compensation     3,007       2,408   Lease obligation     -       4   Intangible assets, net     382       449   Net operating loss carryforwards     11,511       7,118   Other     -       1   Valuation allowance     ( 14,937 )     ( 10,034 ) Deferred tax asset   $ 1     $ 4                     Deferred tax liabilities                 Fixed assets   $ ( 1 )   $ -   Right-of-use asset     -       ( 4 ) Net deferred tax asset   $ -     $ -     Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business and the Company's pre-revenue status, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and other deferred tax assets will not be realized and, as a result, a full valuation allowance has been recorded against the Company’s deferred income tax assets. Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382. In general, an “ownership change,” as defined by Section 382, results from a transaction or series of transactions over a three -year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the net operating loss carryforwards before utilization. Since the Company’s initial public offering, ownership changes have triggered a Section 382 limitation, which limits the ability to utilize net operating loss carryforwards.   The Company has incurred net operating losses from inception. At December 31, 2021, the Company had domestic federal net operating loss carryforwards of $ 94,700 and foreign net operating loss carryforwards of approximately $ 1,857 . In 2021 and previous years, the Company completed public offerings, which triggered ownership changes under Section 382. We believe that as of December 31, 2021, the gross net operating loss carryforwards have been limited to $ 52,200 , which are available to reduce future taxable income. Federal net operating loss carryforwards generated through December 31, 2017 expire at various dates beginning in 2029 through 2038, while federal net operating loss carryforwards generated after 2018 do not expire. Foreign net operating losses do not expire. The Company recorded a valuation allowance against all of its net deferred tax assets of $ 14,937  and $ 10,034  as of December 31, 2021, and 2020, respectively, for a net increase of $ 4,903  from 2020  to 2021  and a net increase of $ 2,986  from 2019  to 2020.   The Company files income tax returns in the U.S. The Company is subject to tax examinations for the 2015  tax year and beyond. The Company has no unrecognized tax positions and does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties related to unrecognized tax positions. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the consolidated financial statements as general and administrative expense.     64 Table of Contents     NOTE 12: CONCENTRATION OF CREDIT RISK   Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250. As of December 31, 2021  and December 31, 2020, the Company had $ 136,185  and $ 39,345 , respectively, in excess of the FDIC insured limit, respectively.     NOTE 13: COMMITMENTS AND CONTINGENCIES   Lease Commitments   The Company evaluates all contractual agreements at inception to determine if they contain a lease. Lease liabilities are measured at present value of lease payments not yet paid, using a discounted cash flow model that requires the use of a discount rate, or incremental borrowing rate. Lease terms of 12 months or less are considering short term operating leases and no asset or liability is recognized.   The Company's operating lease assets consist of an office lease and a copier system lease. Our office lease expired February 28, 2021.  On March 2021, the Company entered into a new operating lease for office space to pay monthly rent of $ 1  for a term of 12 months. Our copier system lease expired in October 2021 and was not renewed.  None of our leases contain options to extend. As of December 31, 2021, the right of use asset and lease liability balances were  $0 .     In May 2020, we amended our office lease and extended the expiration from  August 31, 2020, to February 28, 2021. This amendment increased our right of use asset and lease liability by $20 .  Total operating lease expense for the year ended December  31, 2021  and 2020, was $ 17  and $ 57 , respectively, and variable lease payments of taxes and insurance were immaterial. The weighted average discount rate of our operating leases was 11.3 %.     As of December  31, 2021 there are no  future minimum lease payments due for 2022. Future minimum lease payments are reported in the consolidated balance sheets at December 31, 2020 net of $ 1 of imputed interest. The cash paid for amounts included in the measurement of operating lease liabilities for the year ended December  31, 2021  and 2020, was approximately $ 19 and $ 55 , respectively.   The Company had lease expense under short term leases of $ 26  and $ 18  during the year ended December 31, 2021, and 2020, respectively.    Litigation and Contingencies      We are subject to legal proceedings and claims that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.       65 Table of Contents     NOTE 14: STOCK BASED COMPENSATION   Stock Option and Incentive Plan    On March  24, 2020, the Board of Directors approved the adoption of the 2020 Stock Incentive Plan ( 2020  Plan) to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company.  No awards may be granted under the 2020 Plan after the date that is 10 years from the date of stockholder approval. An aggregate of 3,000  shares were initially reserved for issuance in connection with awards granted under the 2020  Plan. On  May 14, 2021, the stockholders approved an additional  15,000  shares available for issuance under the 2020 Plan. There are 11,936  options available for grant under the 2020 Plan as of December 31, 2021.   On September 28, 2010, the Board of Directors approved the adoption of the 2010 Stock Option and Incentive Plan ( 2010 Plan) to provide for the grant of equity-based awards to employees, officers, non-employee directors and other key persons providing services to the Company. Awards of incentive options could be granted under the 2010 Plan until September 2020. No other awards may be granted under the 2010 Plan after the date that is 10 years from the date of stockholder approval. Between 2016  and 2019 a total of 4,242  additional shares were shareholder approved. The automatic additions to the 2010 Plan since inception pursuant to the “evergreen” terms added an additional 740 shares. Shares may no longer be granted under the expired 2010 Stock Option Incentive Plan.    The Company granted options to purchase 3,819  and 3,140  shares of common stock to employees and directors during the years ended December 31, 2021  and December 31, 2020, respectively. The weighted average grant date fair value of options granted during 2021  and 2020  was $ 2.56  and $ 1.56 , respectively. There were 699  options exercised during the year ended December  31, 2021, at an average exercise price of $ 2.46 . The Company issued 298  new common shares upon this net option exercise. There were 225 options exercised during the year ended December  31, 2020, at an average price of $ 2.40 . The Company issued 76 new common shares upon this net option exercise.    Included in the  2020 options granted above, the Company granted the following stock options (the “2020 Performance Options”) to executives of the Company: (i) to the Chairman of the Board, President and Chief Executive Officer, an option to purchase 1,500  shares of Company common stock, 195 of which were granted under the Company’s 2010 Plan and 1,305  of which were granted under the Company’s 2020 Plan; and (ii) to the Chief Financial Officer, General Counsel and Secretary, an option to purchase 590  shares of Company common stock, 195  of which were granted under the 2010 Plan and 395  of which were granted under the 2020 Plan.   The 2020 Performance Options have an exercise price equal to fair market value of the Company’s common stock on the date of grant which was $ 1.48 per share. The 2020 Performance Options vest quarterly over two years; however, vesting shall accelerate with respect to 50 % of any unvested options granted under the 2020 Plan upon U.S. Federal Drug Administration (FDA) approval of certain therapies. The 2020 Performance Options are subject to the option agreements and employment agreements with the executives.    The fair value of stock options granted for the years ended December 31, 2021  and 2020, was calculated using the Black-Scholes option-pricing model applying the following assumptions:        Year Ended December 31,       2021     2020   Risk-free interest rate     0.89% - 1.08%       0.28% - 0.47 %   Expected term (in years)     5.31 - 6.17       4.50 - 6.18   Dividend yield     -       -   Expected volatility     122% - 130%       103% - 129%     Compensation costs associated with the Company’s stock options are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period. Accordingly, the Company recognized stock-based compensation expense of $ 5,267  and $ 3,019  for the years ended December 31, 2021  and 2020, respectively, which was included in the following captions in the consolidated statements of operations:       Year Ended December 31,       2021     2020   General and administrative   $ 3,676     $ 2,121   Research and development     1,591       898   Total stock compensation expense   $ 5,267     $ 3,019         66 Table of Contents   Options issued and outstanding as of December 31, 2021, and their activities during the year then ended are as follows:       Number of Underlying Shares     Weighted- Average Exercise Price Per Share     Weighted- Average Contractual Life Remaining in Years     Aggregate Intrinsic Value   Outstanding as of January 1, 2021     7,067     $ 2.74             $ -   Granted     3,819       2.98               100   Exercised     (699)       2.46               2,754   Forfeited     (160)       4.56               -       Expired     -       -               -   Outstanding as of December 31, 2021     10,027       2.82       8.27     $ 1,006   Exercisable as of December 31, 2021     6,472       $ 2.87       7.78     $ 938   Vested and expected to vest     10,027       $ 2.82       8.27     $ 1,006     At December 31, 2021, there were 3,555  unvested options outstanding and the related unrecognized total compensation cost associated with these options was $ 7,187 . This expense is expected to be recognized over a weighted-average period of 1.38  years.     NOTE 15: SUBSEQUENT EVENTS   The Company paid a fee of $ 1,000  in June 2021 to a U.S. leading research institution for the exclusive right to negotiate for the period of six months for the acquisition of the world-wide rights to two oncology R&D programs. This agreement was amended on December 3, 2021, which extended the negotiation term through  April 18, 2022.  Those negotiations concluded in February 2022  without reaching a definitive agreement and the research institution agreed to return the $ 1,000  fee as they did not honor their obligation and cancelled the agreement.    On February 24, 2022, the Company granted the following stock options to executives of the Company under the Company’s 2020 Stock Incentive Plan: (i) to Dr. Steven C. Quay, Chairman of the Board, President and Chief Executive Officer, an option to purchase 1,900 shares of Company Common Stock; and (ii) to Kyle Guse, Chief Financial Officer, General Counsel and Secretary, an option to purchase 747 shares of Company Common Stock. The Options vest quarterly over two years and have an exercise price equal to fair market value of the Company’s Common Stock on the date of grant which was $ 1.25 per share.     67 Table of Contents               EXHIBIT INDEX            Incorporated by Reference Herein Exhibit No.   Description   Form   Date               3.1   Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.   Registration Statement on Form S-1, as Exhibit 3.2   June 11, 2012               3.2   Certificate of Amendment to Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.   Current Report on Form 8-K, as Exhibit 4.1   August 26, 2016               3.3   Bylaws of Atossa Therapeutics, Inc.   Registration Statement on Form S-1, as Exhibit 3.4   June 11, 2012               3.4   Amendment to Bylaws of Atossa Therapeutics, Inc.   Current Report on Form 8-K, as Exhibit 3.1   December 20, 2012               3.5   Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Atossa Therapeutics, Inc.   Current Report on Form 8-K, as Exhibit 3.1   May 22, 2014               3.6   Certificate of Designation of Preference, Rights and Limitations of Series A Convertible Preferred Stock   Current Report on Form 10-Q, as Exhibit 3.1   May 11, 2017               3.7   Form of Certificate of Designation of Preference, Rights and Limitations of Series B Convertible Preferred Stock   Amendment No.1 to Registration Statement on Form S-1, as Exhibit 4.1   April 23, 2018               3.8   Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.    Current Report on Form 8-K, as Exhibit 3.1   January 7, 2020               3.9   Amendment to Bylaws of Atossa Therapeutics, Inc.   Current Report on Form 8-K, as Exhibit 3.2   January 7, 2020               3.10   Certificate of Amendment to Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.    Current Report on Form 8-K, as Exhibit 4.1   April 23, 2018               3.11   Form of Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock   Current Report on Form 8-K, as Exhibit 3.1   December 14, 2020               4.1   Specimen common stock certificate   Registration Statement on Form S-1, as Exhibit 4.1   May 21, 2012               4.2   Form of Common Stock Purchase Warrant A   Current Report on Form 8-K, as Exhibit 4.1   December 22, 2017               4.3   Form of Common Stock Purchase Warrant B   Current Report on Form 8-K, as Exhibit 4.2   December 22, 2017               4.4   Form of Warrant Agreement   Amendment No.1 to Registration Statement on Form S-1, as Exhibit 4.2   April 23, 2018               4.5   Form of Warrant Certificate   Amendment No.1 to Registration Statement on Form S-1, as Exhibit 4.3   April 23, 2018               4.6   Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934   Current Report on Form 10K, as Exhibit 4.16   March 26, 2020               4.7   Form of Senior Indenture   Registration Statement on Form S-3, as exhibit 4.1   September 2, 2020               4.8   Form of Common Stock Purchase Warrant   Current Report on Form 8-K, as Exhibit 4.1   December 14, 2020               4.9   Form of Common Stock Purchase Warrant    Current Report on Form 8-K, as Exhibit 4.1   December 21, 2020               4.10   Form of Common Stock Purchase Warrant   Current Report on Form 8-K, as Exhibit 4.1    January 8, 2021               4.11   Form of Common Stock Purchase Warrant   Current Report on Form 8-K, as Exhibit 4.1   March 23, 2021     68 Table of Contents       10.1#   Restated and Amended Employment Agreement with Steven Quay   Registration Statement on Form S-1, as Exhibit 10.3   February 14, 2012               10.2#   Form of Indemnification Agreement   Registration Statement on Form S-1, as Exhibit 10.5   May 21, 2012               10.3#   Form of 2019 Option Award Agreement   Current Report on Form 8-K, as Exhibit 4.1   January 13, 2019               10.4#   Form of Non-Qualified Stock Option Agreement for Employees   Registration Statement on Form S-1, as Exhibit 10.8   June 11, 2012               10.5#   Form of Non-Qualified Stock Option Agreement for Non-Employee Directors   Registration Statement on Form S-1, as Exhibit 10.9   June 11, 2012               10.6#   Form of Restricted Stock Award Agreement   Registration Statement on Form S-1, as Exhibit 10.13   June 11, 2012               10.7#   Amended and Restated Employment Agreement between the Company and Kyle Guse dated May 18, 2016   Current Report on Form 8-K, as Exhibit 10.1   May 20, 2016               10.8#   2010 Stock Option and Incentive Plan, as amended January 13, 2019   Current Report on Form 8-K, as Exhibit 4.2   January 15, 2019               10.9   Equity Distribution Agreement, dated as of September 25, 2020, by and between Atossa Therapeutics, Inc. and Maxim Group LLC    Current Report on Form 8-K, as Exhibit 1.1   September 25, 2020               10.10#   Form of 2020 ISO Option Award Agreement   Current Report on Form 10Q, as Exhibit 4.1    May 13, 2020               10.11#   Form of 2020 Option Award Agreement   Current Report on Form 8-K, as Exhibit 4.1   April 13, 2020               10.12#   Atossa Therapeutics, Inc. 2020 Stock Incentive Plan   On Form DEF 14A, as Appendix A   April 13, 2020               22.1   List of Subsidiaries   Filed herewith                   23.1   Consent of BDO USA LLP   Filed herewith                   24.1   Powers of Attorney   Filed herewith on Powers of Attorney Page                   31.1   Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    Filed herewith                   31.2   Certification Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act    Filed herewith                   32.1   Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act    Filed herewith                   32.2   Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act    Filed herewith                   101.INS   Inline XBRL Instance Document                       101.SCH   Inline XBRL Taxonomy Extension Schema Document                       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document                       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document                       101.LAB   Inline XBRL Taxonomy Extension Labels Linkbase Document                       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document                       104   Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)           # Indicates management contract or compensatory plan, contract or agreement.       69 Table of Contents         SIGNATURES   Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the issuer, a corporation organized and existing under the laws of the State of Delaware, has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in the City of Seattle, State of Washington, on the twenty-eighth day of February 28, 2022.     Atossa Therapeutics, Inc.         By:  /s/ Steven C. Quay     Steven C. Quay, M.D., Ph.D.     Chairman, Chief Executive Officer and President       POWER OF ATTORNEY   KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Steven C. Quay and Kyle Guse and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.   Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated   Signature   Office(s)   Date           /s/ Steven C. Quay   Chairman, Chief Executive   February 28, 2022 Steven C. Quay, M.D., Ph.D.   Officer and President         (Principal Executive Officer)               /s/ Kyle Guse   Chief Financial Officer, General Counsel and Secretary   February 28, 2022 Kyle Guse   (Principal Financial and         Accounting Officer)               /s/ Richard I. Steinhart   Director   February 28, 2022 Richard I. Steinhart                   /s/ Shu-Chi Chen   Director   February 28, 2022 Shu-Chih Chen, Ph.D.                   /s/ Gregory Weaver   Director   February 28, 2022 Gregory Weaver                   /s/ Stephen J. Galli   Director   February 28, 2022 Stephen J. Galli, M.D.                   /s/ H. Lawrence Remmel   Director   February 28, 2022 H. Lawrence Remmel           70