What changed in this filing

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Item 9A. Controls and Procedures

2023-03-22 compared with 2022-02-28 · 334 added, 659 removed, 504 unchanged (66% of the section changed)

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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. 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act).

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or furnished under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our Company's reports filed or furnished under the Exchange Act is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 

Management ’

s Annual Report on Internal Controls

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (pursuant to Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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 as of December 31, 2022, 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 this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Because we are a smaller reporting company, BDO USA LLP, our independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting.

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.

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

 There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during quarter ended December 31, 2022, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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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.

Information regarding our executive officers is set forth in Part I, Item 1 of this Annual Report under the caption “Information about our Executive Officers.”

Except as indicated below, the other 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”).

“Delinquent Section 16(a) Reports,”

as applicable, and “Board Committees”

in our definitive Proxy Statement for our 2023 Annual Meeting of Stockholders to be held on May 4, 2023 (the Proxy Statement).

We have adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions.

Our Code of Conduct is posted on our website located at https://atossatherapeutics.com/investors/ under “Governance.”

We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.

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.

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,” in our Proxy Statement.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER 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”

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in our Proxy Statement.

PRINCIPAL ACCOUNTING FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the sections entitled “Proposal No.

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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this 10-K:

(a) The following documents are filed as a part of this Annual Report:

Financial Statements

The following financial statements are included in Part II, Item 8 of this 10-K:

Report of Independent Registered Public Accounting Firm  

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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.

All financial statement schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.

See the Exhibit Index set forth on page 57 of this report.

FORM 10-K SUMMARY

Not applicable.

ATOSSA THERAPEUTICS, INC.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

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In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, 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

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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.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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.

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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.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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.

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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:

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 communication of 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 Treatment of the Investment in Equity Securities

As described in Note 4 to the consolidated financial statements, the Company holds an investment in equity securities that has a balance of $4,700,000 at December 31, 2022.

This investment was acquired during the year through an initial deposit of $2,700,000 on July 2, 2022 and a final payment of $2,000,000 on December 23, 2022.

We identified the accounting treatment of the investment in equity securities as a critical audit matter.

The principal considerations that led to our determination are certain complexities within accounting principles generally accepted in the United States of America when determining the accounting treatment of the initial deposit and the final investment.

Auditing these elements involved complexities due to the nature and extent of audit 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

Assessing the terms of the agreement to determine if the initial deposit (i) constitutes a purchased call option and (ii) meets the definition of a derivative.

Assessing the terms of the agreement to determine if the final investment is accounted for as (i) a debt or equity security, (ii) a variable interest entity requiring consolidation, or (iii) an equity method investment.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2014.

Seattle, Washington

February 28, 2022

March 22, 2023

ATOSSA THERAPEUTICS, INC.

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141,240  

Furniture and equipment, net

Intangible assets, net

Right-of-use asset

Investment in equity securities

$ 123,532  

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Payroll liabilities

Common stock warrant liability

13,003  

Lease liability

Other current liabilities

Total current liabilities

15,671  

Total Liabilities

15,671  

Commitments and contingencies (Note 14)

Stockholders' equity

Preferred stock - $0.001 par value;

Series B convertible 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

1 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Additional paid-in capital - Series B convertible preferred stock

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175,000 shares authorized;

126,624 and 47,550 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

126,624 shares issued and outstanding as of December 31, 2022 and December 31, 2021

22,792  

Additional paid-in capital

22,792  

Additional paid-in capital - common stock

250,784  

243,996  

Accumulated deficit

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ATOSSA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except for per share amounts)

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Research and development

$ 9,210  

$ 6,608  

General and administrative

11,311  

Total operating expenses

20,521  

14,607  

Operating loss

( 20,521 )  

Change in fair value of common stock warrants

Warrant financing expense

Other (expense) income, net

( 85 )  

Interest income

Other expense, net

Loss before income taxes

( 20,606 )  

$ ( 20,606 )  

Deemed dividend attributable to preferred stock

Net loss applicable to common shareholders

$ ( 20,606 )  

Loss per common share - basic and diluted

$ ( 0.18 )  

Loss per share of common stock - basic and diluted

Weighted average shares outstanding - basic and diluted

116,950  

11,309  

The accompanying notes are an integral part of these consolidated financial statements.

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(amounts in thousands)

Series C Convertible Preferred Stock

Series B Convertible Preferred Stock

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Paid-in Capital

Accumulated Deficit

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$ ( 111,899 )  

Issuance of common stock, net of issuance costs of $475

$ 27,168  

Cumulative effect of adopted accounting standard

13,003  

Issuance of common stock and warrants, net of issuance costs of $ 5,493

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69,668  

Allocation of common stock proceeds to warrant liability

Issuance of common stock upon warrant exercise

37,451  

Issuance of Series C convertible preferred stock and warrants, net of issuance costs of $260

Allocation of Series C convertible preferred stock to beneficial conversion feature and warrant liability

37,077  

Deemed dividend on Series C convertible preferred stock

43,818  

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( 39 )  

Conversion of Series C convertible preferred stock to common stock

( 5,425 )  

Common stock issued for option exercises

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$ ( 129,234 )  

Cumulative effect of adopted accounting standard

$ 138,136  

Issuance of common stock and warrants, net of issuance costs of $5,493

41,211  

62,250  

69,668  

Issuance of common stock upon warrant exercise

37,451  

37,077  

43,818  

Conversion of Series B convertible preferred stock to common stock

( 39 )  

Common stock issued for option exercise

Shares withheld related to cashless exercise of options and taxes

( 298 )  

( 54 )  

( 1,852 )  

Compensation cost for stock options granted

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(amounts in thousands)

Year Ended December 31,

For the Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 20,606 )  

Adjustments to reconcile net loss to net cash used in operating activities

Compensation cost for stock options granted

Disposal of assets

Depreciation and amortization

Change in fair value of common stock warrant liability

Warrant financing expense

Disposal of assets

Changes in operating assets and liabilities:

Prepaid expenses

( 674 )  

Research and development tax rebate receivable

( 437 )  

( 521 )  

Other current assets

Accounts payable

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Net cash used in operating activities

( 16,472 )  

CASH FLOWS FROM INVESTING ACTIVITY

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of investment in equity securities

Purchase of furniture and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITY

Proceeds from issuance of common stock, net of issuance costs

CASH FLOWS FROM FINANCING ACTIVITIES

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

Proceeds from exercise of warrants

Proceeds from exercise of employee stock options

Payment of taxes related to net-exercise of employee stock options

( 573 )  

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  

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

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

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Cash and cash equivalents

$ 136,377  

$ 39,554  

Restricted cash

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  

NONCASH INVESTING AND FINANCING ACTIVITIES

Reclassification of the warrant liability to equity upon adoption of accounting standard

Common stock issued upon cashless exercise of stock options

$ 1,333  

Deemed dividend attributable to preferred stock

$ 4,503  

Conversion of Series B convertible preferred stock to common stock

Conversion of Series C convertible preferred stock to common stock

$ 5,425  

The accompanying notes are an integral part of these consolidated financial statements.

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.

(the Company) was incorporated on April 30, 2009, 

in the State of Delaware to develop and market medical devices, laboratory tests and therapeutics to address breast health conditions.

The Company is currently focused on developing proprietary innovative medicines in areas of significant unmet medical need in oncology, with a current focus on breast cancer and other breast conditions. The Company's fiscal year ends on December 31.

Impact of the Ongoing Coronavirus Pandemic  

The ongoing COVID- 19 pandemic 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 (Z)-endoxifen, AT- H201 and the pace of enrollment in the Company’s 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. As the COVID- 19 pandemic reaches endemic stages, the extent to which it may continue to impact the Company’s operations, including COVID- 19 -related delays or other impacts on the Company’s business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, remains highly uncertain and difficult to predict;

however, the Company has not experienced a significant delay in the enrollment or the drug supply for its ongoing and planned clinical studies, including studies of (Z)-endoxifen and AT- H201.

LIQUIDITY AND CAPITAL RESOURCES

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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.

31, 2022, the Company recorded a net loss of $ 26,960 and used $ 20,760  of cash in operating activities.

As of December 31, 2022, the Company had $ 110,890  in cash and cash equivalents and working capital of $ 112,629 .

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.

The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs, and it 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 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.

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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.

 The accompanying consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) and in accordance with the accounting principles generally accepted in the U.S.

(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.  

Reclassification

Interest income has been reclassified from prior period amounts to conform to the current year presentation.

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.

The preparation of the consolidated 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 

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 

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

Additional paid-in capital

Accumulated deficit

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.

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.

The Company operates as a single segment.

Operating segments are identified as the components of an enterprise of which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and in assessing performance.

To date, our chief operating decision maker has made such decisions and assessed performance at the Company-level as a single segment.

and Cash Equivalents

Cash and equivalents include unrestricted cash and all highly liquid instruments with original maturities of three months or less at date of purchase.

Investments in Equity Securities

The investment in non-marketable securities is carried at cost less any impairment in accordance with Accounting Standards Codification ASC 321 - Equity .

This investment does not have a readily determinable fair value, so the Company has elected to measure the investment at cost.

At each reporting period, the Company will perform an assessment to determine if it still qualifies for this measurement alternative. The Company considered qualitative impairment factors in determining if there were any signs of impairment.

Specifically, the Company considered the adverse change in the general market condition of the industry in which Dynamic Cell Therapies, Inc.

(DCT) operates and concerns about the investee’s ability to continue as a going concern, due to negative cash flows from operations.

Based on these impairment indicators, the Company performed a fair value measurement as of December 31, 2022. 

The resulting valuation concluded that the investment was not impaired, thus, no impairment has been recorded.

The assumptions and estimates used to estimate the fair value of the investment include the following information from DCT:

Unaudited financial statements;

Projected technological developments of DCT;

Current fundraising transactions;

Current ability of DCT to raise additional financing when needed;

Changes in the economic environment which may have a material impact on the operating results of DCT, and;

Timing of a deemed liquidation event occurring.

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.

Please also refer to Note 9.

Research  

and Development Expenses

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.

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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.

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.

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 price of the Company's common stock, 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 the Company's 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 is based upon prevailing short-term interest rates over the expected lives of the options.

The Company accounts for income taxes under the asset and liability method.

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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 

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.

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 

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.

 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 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.

The Company does not record right-of-use assets or operating lease liabilities on leases with initial terms of 12 months or less (short-term). All Company leases are short-term in duration;

therefore, no right of use assets or lease liabilities are recorded as of December 31, 2022 

Foreign Currency Translation and Transactions

The majority of the Company's operations occur in entities that have the U.S.

dollar as their functional currency.

The one non-U.S.

dollar denominated functional currency subsidiary has assets and liabilities translated into U.S.

dollars at rates of exchange in effect at the end of the year. Expense amounts are translated using the average exchange rates for the period.

Net unrealized gains and losses resulting from foreign currency translation are recorded in Other expense, net in the consolidated statements of operations. The Company had realized losses on foreign currency exchange during the years ended December 31, 2022 and 2021 of $ 122  and $ 72 , respectively, which are included in Other expense, net in the consolidated statements of operations. 

Recently Adopted Accounting Pronouncements

On May 3, 

2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.

As there were no modifications or exchanges of freestanding equity-classified warrants during the year ended December 31, 2022, the standard did not have an impact on the consolidated financial statements. 

On January 1, 2022, the Company adopted ASU No.

2021 - 10,  

Annual Disclosure Requirements for Business Entities Receiving 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 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 disclosure of the Company's research and development tax rebate receivable is detailed in Note 7.

INVESTMENT IN EQUITY SECURITIES 

On July 1, 2022, the Company entered into a letter agreement (the "Letter Agreement") with Dynamic Cell Therapies, Inc, a U.S.

private company that is in the pre-clinical stage of developing novel Chimeric Antigen Receptor (CAR) T-cell therapies based on technology licensed from a leading U.S.

cancer treatment and research institution.

The Letter Agreement required that up until November 1, 2022, 

DCT would (i) negotiate exclusively with the Company for the Company to acquire DCT, and (ii) address certain matters related to personnel, operations and intellectual property. The Company paid $ 2,700 on 

July 2, 2022 

for the exclusive right to negotiate with DCT. 

If by November 1, 2022, a definitive agreement was not reached for the Company to acquire DCT and a specific material adverse event had not occurred, the Company would pay an additional $ 2,000 for a preferred stock equity interest of 19.99 % of the then outstanding total equity in DCT.

December 23, 2022, 

the Company paid $ 2,000 to DCT.

In total, the Company paid $ 4,700 to DCT and received Series Seed Preferred Shares representing approximately 19 % of the post-investment outstanding shares of DCT.

The Company reviewed its investment in DCT to determine whether or not the Company has a variable interest in DCT and whether DCT would meet the definition of a variable interest entity in accordance with Accounting Standards Codification (ASC) Topic 810, Consolidation .

The Company determined that DCT was a variable interest entity, however, the Company is not the primary beneficiary and does not control DCT. The investment in DCT has been accounted for as an investment in equity securities on the consolidated balance sheet.

For equity interests without a readily determinable fair value, an entity may elect to measure these investments at cost minus any impairment. The Company has elected to carry this investment in non-marketable securities at cost less any impairment in accordance with ASC 321 - Equity .

At each reporting period, the Company will perform an assessment to determine if it still qualifies for this measurement alternative.

The Company considered qualitative impairment factors in determining if there were any signs of impairment.

Specifically, the Company considered the adverse change in the general market condition of the industry in which DCT operates and concerns about the investee’s ability to continue as a going concern, due to negative cash flows from operations.

Based on these impairment indicators, the Company performed a fair value measurement as of December 31, 2022.

The resulting valuation concluded that the investment was not impaired, thus, no impairment has been recorded as of December 31, 2022.

At each reporting period, the Company will continue to evaluate this investment for impairment and will continue to perform qualitative assessments considering potential impairment indicators. 

RESTRICTED CASH

The Company's restricted cash balance of $ 110  as of December 31, 2022 

and 2020, consists entirely of cash pledged as security for the Company’s issued commercial credit cards.

and 2021, consisted entirely of cash pledged as security for the Company’s issued commercial credit cards.

PREPAID EXPENSES

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Prepaid research and development

$ 1,853  

$ 1,216  

Prepaid insurance

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Total prepaid expenses

$ 2,488  

$ 1,814  

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.

 On May 23, 2017, the Company 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 some of the Company's clinical trials.

Australia offers an R&D cash rebate of $0.435 per dollar spent on qualified R&D activities incurred in the country. For entities with over 80% of revenue from passive sources, the rate increases to $0.485 per dollar. The Australian R&D tax incentive program is a self-assessment process, and as such, the Australian Government has the right to review the Company’s qualifying programs and related expenditures for a period of four years. If such a review were to occur, and as a result of the review and failure of a related appeal, a qualified program and related expenditures could be disqualified, and the respective R&D rebates of 

$2,028 collected could be recalled with penalties and interest.

The Company uses the grant accounting model by analogy to International Accounting Standards (IAS) 20 to account for the cash rebates received from the Australian government.

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. 

31, 2022  and 

2021, the Company incurred qualified R&D expenses in Australia of $ 1,546  and $ 1,251 , respectively. The Company collected R&D cash rebates of $ 1,001 and $ 0 , during the years ended December 31, 2022 and 2021, respectively. At 

December 31, 2022 

and 2021, the Company had a total R&D rebate receivable of $ 743  and $ 1,072 , respectively.

The Company records the R&D rebate credit in the period when it incurs the associated R&D cost. As such, the rebate reduced the R&D expense line item on the Consolidated Statements of Operations by $ 728  and $ 498  for the years ended December 31, 2022 and 2021, respectively.  

PAYROLL LIABILITIES

Payroll liabilities consisted of the following:

As of December 31,

Accrued bonuses

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Total payroll liabilities

$ 1,184  

FAIR VALUE OF FINANCIAL INSTRUMENTS

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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:

 The following tables present the Company’s fair value hierarchy for all its financial assets and liabilities, by main security type, measured at fair value on a recurring basis:

December 31, 2022

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Money market account

$ 51,796  

December 31, 2021

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Money market account

$ 1,789  

Common stock warrant liability

$ 13,003  

 The following table summarizes the changes in the Company’s Level 3 warrant liability for the year ended December 31, 2021:

The warrants issued in December 

2020 contained certain provisions that may have required the Company to settle the warrants in cash should an event outside the Company’s control occur, and therefore, they were 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 primarily 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.

On January 1, 2021, the Company early adopted ASU 

2020 - 06, Debt –

Debt with Conversion and Other Options (Topic 470 ) and Derivative Hedging - Contracts in an Entity's Own Equity  

(Topic 815 ) .

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

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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.

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 were outstanding as of December 

31, 2022 or 

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.

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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.

The common stock and warrants have been registered under the Securities Act of 1933, as amended. 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 

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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 .

The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock was $ 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.

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.

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.

 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.

Series C Convertible Preferred Stock .

The terms and provisions of our Series C convertible preferred stock are:

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.

The warrants will expire on the 4.5 -year anniversary of the date of issuance.

 The net proceeds to the Company from the offering and the private placement were $ 46,400 , after deducting fees and expenses.

Series B Convertible Preferred Stock

 Each share of Series B convertible preferred stock is convertible at the Company's 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 B convertible preferred stock by a conversion price of $ 3.52 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.

Subject to limited exceptions, a holder of the Series B convertible preferred stock will not have the right to convert any portion of the Series B 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.

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

 In the event the Company effects certain mergers, consolidations, sales of substantially all of its assets, tender or exchange offers, reclassifications or share exchanges in which its common stock is effectively converted into or exchanged for other securities, cash or property, the Company consummates 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 B convertible preferred stock, the holders of the Series B 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 B convertible preferred stock.

 Holders of Series B 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.

 Except as otherwise provided in the certificate of designation or as otherwise required by law, the Series B 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.

 Upon the Company's liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series B convertible preferred stock will be entitled to receive out of the Company's assets, whether capital or surplus, the same amount that a holder of common stock would receive if the Series B 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.

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 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 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 .

The form of the warrant does not explicitly state that the warrants will not be settled in cash. 

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.

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 .

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

Expected term

Dividend yield

Expected volatility

December 31, 2020 Valuation

Common stock price

$ 0.95  

Exercise price

$ 1.00  

Risk-free interest rate

Expected term

Dividend yield

Expected volatility

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. 

Warrants  

The terms and conditions of the warrants included in the December 21, 2020, offerings are as follows:

 The Company is 

not obligated to redeem or repurchase any shares of Series B convertible preferred stock.

Shares of Series B convertible preferred stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous provisions.

2021 and 2020 Warrants  

The terms and conditions of the warrants are as follows:

Exercisability .

Each warrant is exercisable at any time and will expire 4.5 years from the date of issuance.

Each warrant is exercisable at any time and will expire between 4 and 4.5 -years from the date of issuance.

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Exercise Price .

Each warrant represents the right to purchase one share of common stock at an exercise price of $ 1.00  per share.

Each warrant represents the right to purchase one share of common stock.

In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances.

3 unchanged sentences

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.

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.

The Company does not intend to apply to list the warrants on any securities exchange or recognized trading system.

Rights as Stockholder .

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Expiration Date

May 2018 warrants

$ 4.05  

December 2020 warrants

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Warrant Activity

During 2021, the Company received $ 43,818  from the exercises of warrants.

There were no warrant exercises during the year ended December 31, 2022.

During the year ended 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.

37,451  shares of common stock. On May 

30, 2022, all 762 of the warrants issued in May 

2018  expired, unexercised, with an exercise price of $ 4.05 per share. 

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 

During the year ended December 31, 2022, there were 

no conversions of Series B convertible preferred stock. During the year ended 

December 31, 2021, 

certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 0.039 of their shares into 

11  shares 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.

NET LOSS PER SHARE 

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Year Ended December 31,

$ ( 20,606 )  

Deemed dividend attributable to preferred stock

Net loss attributable to common shareholders

$ ( 20,606 )  

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 )  

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: 

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,

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Warrants to purchase common stock

24,144  

33,351  

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.

7 unchanged sentences

$ ( 5,662 )  

Stock compensation

Other permanent items

Other deferred items

Disallowed R&D expenses

Non-taxable R&D rebate

( 156 )  

Recognition of foreign NOLs

Other permanent items

Return to provision

Stock-based compensation adjustment

Foreign rate differential

( 270 )  

Recognition of foreign net operating loss carryforwards

Effect of change in valuation allowance

Actual federal income tax benefit

The components of net deferred tax assets and liabilities are as follows:

The components of net deferred tax assets and liabilities were as follows:

As of December 31,

Deferred tax assets

Obsolete inventory

Accrued bonus

Accrued vacation

Stock-based compensation

Lease obligation

Capitalized R&D expenses

Intangible assets, net

1 unchanged sentence

11,522  

11,511  

Valuation allowance

3 unchanged sentences

$ ( 1 )  

Right-of-use asset

Net deferred tax asset

6 unchanged sentences

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.

At December 31, 2022, the Company had domestic federal net operating loss carryforwards of $ 99,047  and foreign net operating loss carryforwards of $ 1,514 .

In previous years, the Company completed public offerings, which triggered ownership changes under Section 382.

The Company believes that as of December 31, 2022, the gross net operating loss carryforwards is limited to $ 52,700 , which are available to reduce future taxable income.

Federal net operating loss carryforwards generated through December 31, 2017 expire at various dates beginning 

2029 through 2038, while federal net operating loss carryforwards generated during or 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 $ 19,327  and $ 14,937  as of as of December 31, 2021, respectively, for a net increase of $ 4,390  from 2021  to 2022  and a net increase of $ 4,903  from 2020  to 2021.

Historically, Section 174 allowed taxpayers to deduct R&D expenses in the same year incurred and companies that engage in research-based activities relied on full expensing as a significant cost recovery mechanism.

The Tax Cut and Jobs Act (TCJA) resulted in significant changes to the treatment of R&D expenses under Section 174.

 For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&D expenses paid or incurred during the year in the regular course of business.

R&D expenses incurred in the U.S.

during the year have been amortized over a five -year period and R&D expenses incurred in Australia during the year have been amortized over a fifteen -year period. All direct R&D expenses as classified on the Consolidated Statement of Operations have been capitalized and indirect R&D expenses included in G&A on the Consolidated Statement of Operations have been capitalized based on R&D compensation as a percent of total compensation other than legal patent expenses which have been fully capitalized.

The Company files income tax returns in the U.S.

and Australia.

The Company is subject to tax examinations for the 2016  tax year and beyond.

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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.

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash deposits.

Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250.

As of December 31, 2022 

and December 31, 2020, the Company had $ 136,185  and $ 39,345 , respectively, in excess of the FDIC insured limit, respectively.

and 2021, the Company had $ 110,647 and $ 136,185 , respectively, in excess of the FDIC insured limit.

COMMITMENTS AND CONTINGENCIES

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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.

Leases with a term of 12 months or less are considered 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 

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. 

The Company's office lease expired February 28, 2022. 

On March 1, 2022, the Company entered into a new short-term operating lease for office space to pay monthly rent of $ 1  for a term of 12 months.

The Company's copier system lease expired in October 2021 and was not renewed. The Company had lease expense under short term leases of $ 15  and $ 26  during the year ended December 31, 2022, and 2021, 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.

The Company is subject to legal proceedings and claims that arise in the normal course of business.

The Company believes that these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on its financial position, results of operations or cash flows.

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. 

24, 2020, the Board of Directors approved the adoption of the 2020 Stock Incentive Plan (the 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.

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.

15,000  shares available for issuance under the 2020 Plan. There were 

8,251  options available for future grants under the 2020 Plan as of December 31, 2022.

On September 28, 2010, the Board of Directors approved the adoption of the 2010 Stock Option and Incentive Plan (the 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.

Shares may no longer be granted under this plan. 

The Company granted 

4,079  and 3,819 options to purchase shares of common stock to employees and directors during the years ended December 31, 2022 

2021, respectively. The weighted average grant date fair value of options granted during 2022  and 2021  was $ 0.96  and $ 2.56 , 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:

31, 2021, at a weighted average exercise price of $2.46.

The Company issued 298  new common shares upon net exercise of these options. 

No options were exercised during the year ended December 31, 2022.

The fair values of stock options granted were calculated using the Black-Scholes option-pricing model applying the following assumptions:

Year Ended December 31,

Risk-free interest rate

0.89% - 1.08%  

0.28% - 0.47 %  

1.86% - 3.56%

0.89% - 1.08%

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:

Accordingly, the Company recognized stock-based compensation expense, which was included in the following line items, in the Consolidated Statements of Operations:

Year Ended December 31,

General and administrative

$ 3,676  

$ 2,121  

Research and development

Total stock compensation expense

$ 5,267  

$ 3,019  

Options issued and outstanding as of December 31, 2021, and their activities during the year then ended are as follows:

Options issued and outstanding as of December 31, 2022, and their activities during the year ended 2022 are as follows:

Exercise Price

2 unchanged sentences

Outstanding as of January 1, 2022

Exercised  

Expired  

2 unchanged sentences

Vested and expected to vest

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 .

On December 31, 2022, there were 3,623  unvested options outstanding, and the related unrecognized total compensation cost associated with these options was $ 4,157 .

This expense is expected to be recognized over a weighted-average period of 1.04  years.

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:

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.

EXHIBIT INDEX 

Incorporated by Reference Herein

Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.

Registration Statement on Form S-1, as Exhibit 3.2

Amended and Restated Certificate of Incorporation

Amendment No.3 to Registration Statement on Form S-1, as Exhibit 3.2

June 11, 2012

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc.

Certificate of Amendment to Amended and Restated Certificate of Incorporation

Current Report on Form 8-K, as Exhibit 4.1

August 26, 2016

Bylaws of Atossa Therapeutics, Inc.

Registration Statement on Form S-1, as Exhibit 3.4

June 11, 2012

Amendment to Bylaws of Atossa Therapeutics, Inc.

Current Report on Form 8-K, as Exhibit 3.1

December 20, 2012

Certificate of Designation, Preferences, and Rights of Series A Junior Participating Preferred Stock of Atossa Therapeutics, Inc.

Certificate of Amendment to Amended and Restated Certificate of Incorporation

Current Report on Form 8-K, as Exhibit 4.1

May 22, 2014

Certificate of Designation of Preference, Rights and Limitations of Series A Convertible Preferred Stock

Current Report on Form 10-Q, as Exhibit 3.1

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

Amended and Restated Certificate of Incorporation of Atossa Therapeutics, Inc. 

Certificate of Amendment to Amended and Restated Certificate of Incorporation

Current Report on Form 8-K, as Exhibit 3.1

January 7, 2020

Amendment to Bylaws of Atossa Therapeutics, Inc.

Amended and Restated Bylaws

Current Report on Form 8-K, as Exhibit 3.2

January 7, 2020

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

Form of Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock

Certificate of Designation Preferences, and Rights of Series A Junior Participating Preferred Stock

Current Report on Form 8-K, as Exhibit 3.1

December 14, 2020

Specimen common stock certificate

Registration Statement on Form S-1, as Exhibit 4.1

Form of Common Stock Purchase Warrant A

Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock

Quarterly Report on Form 10-Q, as Exhibit 3.1

Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock

Current Report on Form 8-K, as Exhibit 3.1

December 22, 2017

Form of Common Stock Purchase Warrant B

May 31, 2018

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

Form of Warrant Agreement

Amendment No.1 to Registration Statement on Form S-1, as Exhibit 4.2

April 23, 2018

Form of Warrant Certificate

Specimen Common Stock Certificate

Amendment No.

2 to Registration Statement on Form S-1, as Exhibit 4.1

Form of Warrant

Amendment No.1 to Registration Statement on Form S-1 as Exhibit 4.3

April 23, 2018

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

Form of Senior Indenture

Registration Statement on Form S-3, as exhibit 4.1

September 2, 2020

Form of Common Stock Purchase Warrant

Form of Warrant

Current Report on Form 8-K, as Exhibit 4.1

December 14, 2020

Form of Common Stock Purchase Warrant 

Form of Warrant

Current Report on Form 8-K, as Exhibit 4.1

December 21, 2020

Form of Common Stock Purchase Warrant

Form of Warrant

Current Report on Form 8-K, as Exhibit 4.1

 January 8, 2021

Form of Common Stock Purchase Warrant

January 8, 2021

Form of Warrant

Current Report on Form 8-K, as Exhibit 4.1

March 23, 2021

Restated and Amended Employment Agreement with Steven Quay

Form of Senior Indenture

Registration Statement on Form S-3, as Exhibit 4.1

February 14, 2012

Form of Indemnification Agreement

September 2, 2020

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

Annual Report on Form 10-K, as Exhibit 4.16

 March 26, 2020

Restated and Amended Employment Agreement with Steven Quay dated September 27, 2010

Registration Statement on Form S-1, as Exhibit 10.3

Form of 2019 Option Award Agreement

February 14, 2012

Amended and Restated Employment Agreement with Kyle Guse dated May 18, 2016

Current Report on Form 8-K, as Exhibit 10.1

Form of Indemnification Agreement

Filed herewith

2010 Stock Option and incentive Plan, as amended

Current Report on Form 8-K, as Exhibit 4.2

January 15, 2019

Form of Non-Qualified Stock Option Agreement for Employees

Registration Statement on Form S-1, as Exhibit 10.8

Amendment No.

3 to Registration Statement on Form S-1, as Exhibit 10.8 

June 11, 2012

Form of Non-Qualified Stock Option Agreement for Non-Employee Directors

Registration Statement on Form S-1, as Exhibit 10.9

Amendment No.

3 to Registration Statement on Form S-1, as Exhibit 10.9

June 11, 2012

Form of Restricted Stock Award Agreement

Registration Statement on Form S-1, as Exhibit 10.13

Amendment No.3 Registration Statement on Form S-1, as Exhibit 10.13

June 11, 2012

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

2010 Stock Option and Incentive Plan, as amended January 13, 2019

Form of 2019 Option Award Agreement

Current Report on Form 8-K, as Exhibit 4.1

January 15, 2019

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

2020 Stock Incentive Plan, as amended

Registration Statement on Form S-8, as Exhibit 99.1

March 31, 2021

Form of ISO Option Award Agreement

Current Report on Form 10Q, as Exhibit 4.1 

Form of 2020 Option Award Agreement

Quarterly Report on Form 10-Q, as Exhibit 4.1

Form of Option Award Agreement

Current Report on Form 8-K, as Exhibit 4.1

April 13, 2020

Atossa Therapeutics, Inc.

2020 Stock Incentive Plan

On Form DEF 14A, as Appendix A

April 13, 2020

List of Subsidiaries

2 unchanged sentences

Filed herewith

Powers of Attorney

Filed herewith on Powers of Attorney Page

Powers of Attorney (included in signature page of this Form 10-K)

Filed herewith 

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act 

3 unchanged sentences

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 

Filed herewith

Furnished herewith

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 

Filed herewith

Furnished herewith

Inline XBRL Instance Document

6 unchanged sentences

Indicates management contract or compensatory plan, contract or agreement.

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.

4 unchanged sentences

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

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 Annual 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, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

/s/ Steven C.

Chairman, Chief Executive

February 28, 2022

March 22, 2023

Quay, M.D., Ph.D.

3 unchanged sentences

Chief Financial Officer, General Counsel and Secretary

February 28, 2022

March 22, 2023

(Principal Financial and

1 unchanged sentence

/s/ Richard I.

February 28, 2022

/s/ Shu-Chi Chen

February 28, 2022

March 22, 2023

/s/ Shu-Chih Chen

March 22, 2023

Shu-Chih Chen, Ph.D.

/s/ Gregory Weaver

February 28, 2022

March 22, 2023

Gregory Weaver

/s/ Stephen J.

February 28, 2022

March 22, 2023

Lawrence Remmel

February 28, 2022

March 22, 2023

Lawrence Remmel

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures