Moleculin Biotech, Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   Market Information   Our common stock is listed on the NASDAQ Capital Market under the symbol “MBRX”.    Holders   As of Marc h 14, 2022, there were approximately 140 h olders of record of our common stock. In addition, we believe that a significant number of beneficial owners of our common stock hold their shares in nominee or in “street name” accounts through brokers.   Dividends   We have never paid any dividends on our common stock. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. It is the present intention of our Board of Directors to retain all earnings, if any, for use in our business operations and, accordingly, our Board of Directors does not anticipate declaring any dividends in the foreseeable future.   Recent Sales of Unregistered Securities   All information related to equity securities sold by us during the period covered by this report that were not registered under the Securities Act have been included in our Form 10-Q filings or in a Form 8-K filing. We did not issue any equity securities during the fourth quarter of 2021 that were not registered under the Securities Act.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers   We did not repurchase any of our equity securities during the year ended December 31, 2021.   ITEM 6. [RESERVED]   ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion should be read in conjunction with the Financial Statements and Notes thereto included in this Form 10-K. The forward-looking statements included in this discussion and elsewhere in this Form 10-K involve risks and uncertainties, including those set forth under “Cautionary Statement About Forward-Looking Statements.” Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in this Item and in Item 1A - “Risk Factors.”   Our Business   We are a clinical stage pharmaceutical company with a growing pipeline of clinical programs for the treatment of highly resistant cancers and viruses. We have three core technologies, based substantially on discoveries made at and licensed from MD Anderson Cancer Center (MD Anderson) in Houston, Texas. We have six drug candidates, three of which have now shown human activity in clinical trials.   Core Technologies   Our core technologies consist of the following: a) Annamycin, a “next generation” anthracycline designed to be different than currently approved anthracyclines by eliminating cardiotoxicity and avoiding the multidrug resistance mechanisms that can limit the efficacy of the approved products. (Annamycin has shown no cardiotoxicity in subjects treated to date in Moleculin’s clinical trials); b) our WP1066 Portfolio, which includes WP1066 and WP1220, two of several Immune/Transcription Modulators in the portfolio designed to inhibit p-STAT3 (phosphorylated signal transducer and activator of transcription) among other transcription factors associated with tumor activity, while also stimulating a natural immune response to tumors by inhibiting the errant activity of Regulatory T-Cells (TRegs); and c) our WP1122 Portfolio, which contains compounds (including WP1122, WP1096, WP1097) designed to exploit the potential uses of inhibitors of glycolysis such as 2-deoxy-D-glucose (2-DG), which we believe may provide an opportunity to cut off the fuel supply of tumors by taking advantage of their high level of dependence on glucose in comparison to healthy cells.   Clinical Trials   In the US and Europe, we have completed or are currently conducting clinical trials for three of our drug candidates – Annamycin, WP1066, and WP1220. All trials are or were in the Phase 1 portion, except the WP1220 trial, which was a proof-of-concept clinical trial. During 2021, we had four active clinical trials evaluating either Annamycin or WP1066 in the US and Europe. In 2021 and early 2022, there were also three “right-to-try” (or their foreign equivalent) uses of Annamycin and WP1066. Of the four clinical trials active in 2021, two of those are internally funded trials (the difference between “internally” and “externally” funded trials is discussed in Item 1. Business above) of Annamycin. One is studying relapsed and refractory acute myeloid leukemia (AML) in Europe, and one is investigating soft tissue sarcoma metastasized to the lungs (STS lung metastases) in the US. The other two trials are externally funded studies of WP1066 in brain tumors, both in the US, one of which was terminated during the year because the Principal Investigator in that trial moved to a new institution. We successfully concluded an internally funded Phase 1 AML clinical trial in Europe in early 2022, establishing a Recommended Phase 2 Dose (RP2D) for Annamycin as a single agent. We are in the process of locking the database and beginning the completion of the Clinical Study Report (CSR) for that study.   48 Table of Contents   During 2021, we filed applications or began recruiting for four clinical trials in the US and Europe. The investigational new drug (IND) application in the US for a Phase 1b/2 trial of Annamycin for the treatment of STS lung metastases was filed in late 2020 with the US Food and Drug Administration (FDA). The IND went into effect in early 2021 and this trial began recruiting subjects shortly thereafter. In 2021, we also filed and received clearance for an IND for a Phase 1 trial for WP1122 treating glioblastoma multiforme (GBM) in adults, and consistent with our strategy of leveraging external funding for many of our clinical trials, we intend to seek opportunities for an investigator-initiated clinical trial in cancer patients in 2022. We also filed in October 2021 a clinical trial application (CTA) to commence a Phase 1a clinical trial of WP1122 in the United Kingdom for the treatment of COVID-19 for which we later received the appropriate authorization to proceed. In early March 2022, we filed an amended protocol with both the Riverside Ethics Committee and Medicines and Healthcare Products Regulatory Agency (MHRA). The amendment updated the level of dilution of the oral solution to ensure that WP1122 is fully dissolved in a wider range of pharmacy environments. We believe that the risk/benefit aspect of the study was not affected by this change. Once this amendment is approved, we expect this internally funded trial to begin in the first half of 2022.   We also filed a CTA in Poland in November 2021 for a Phase 1/2 trial for the treatment of relapsed and refractory AML with a combination of Annamycin and Cytarabine (AnnAraC) for which we received Central Ethics approval in December 2021. Upon receipt of approval from the Office for Registration of Medicinal Products, Medical Devices and Biocidal Products (URPL), we plan to proceed with this trial. This trial builds on the safety and dosage data from the two successfully concluded single agent Annamycin AML Phase 1 trials in the US and Europe and is supported by preclinical animal data from our ongoing sponsored research at MD Anderson. The AnnAraC trial is expected to begin during the first half of 2022.   In addition to the trials described above, we expect that an investigator sponsored trial will be initiated in Europe in 2022 to study an alternative dosing regimen for Annamycin in the treatment of STS lung metastases. During 2022, we may also have another investigator led trial outside of the US (partially internally funded) focused on the use of WP1122 for the treatment of subjects with COVID-19. The volatility and unpredictability of COVID-19 incidence in various countries may limit our ability to recruit certain subjects and could make it infeasible for us to conduct a Phase 2 clinical trial on a timely basis, or at all. As mentioned earlier, the WP1066 brain tumor trial at MD Anderson was terminated in 2021, as the original lead physician investigator moved to another institution. We expect another externally funded Phase 1/2 investigator led trial to replace the MD Anderson trial in 2022. That trial’s IND will likely reference our WP1066 GBM IND filed in early 2022, once cleared by the FDA. We expect this new trial to investigate WP1066 in combination with radiation for the treatment of adult brain tumors.   Moleculin Biotech, Inc. Results of Operations for the Year Ended December 31, 2021 as Compared to the Year Ended December 31, 2020   The following table is data derived from the Consolidated Statement of Operations (in thousands) and the discussions that follow are in approximate amounts:       Year ended December 31,       2021     2020   Revenue   $ —     $ —   Operating expenses:                 Research and development     14,418       12,757   General and administrative     8,386       6,785   Depreciation and amortization     164       200   Total operating expense     22,968       19,742   Loss from operations     (22,968 )     (19,742 ) Other income:                 Gain from change in fair value of warrant liability     6,728       2,346   Other income, net     40       28   Interest income, net     306       13   Net loss   $ (15,894 )   $ (17,355 )   Research and Development Expense     Research and development (R&D) expense was $14.4 million and $12.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in R&D of $1.6 million is mainly rela ted to an  increase in the number of internally funded clinical trials and overall clinical trial activity, and costs related to manufacturing of additional drug product .    General and Administrative Expense     General and administrative (G&A) expense was $8.4 million and $6.8 million for the years ended December 31, 2021 and 2020, respectively. The increase in G&A of $1.6 million was mainly attributable to an increase in headcount, consulting & advisory fees, and an increase in our corporate insurance.   Gain from Change in Fair Value of Warrant Liability   We recorded a gain of $6.7 million during the year ended December 31, 2021 as compared to a gain of $2.3 million, during the year ended December 31, 2020, for the change in fair value on revaluation of our warrant liability associated with our warrants issued in conjunction with our stock offerings. We are required to revalue certain of the warrants at the time of each warrant exercise and at the end of each reporting period and reflect in the statement of operations a gain or loss from the change in fair value of the warrant in the period in which the change occurred. We calculated the fair value of the warrants outstanding using the Black-Scholes model. Generally, a gain results principally from a decline in our share price during the period and a loss results principally from an increase in our share price.   Net Loss   The net loss for the year ended December 31, 2021 was $15.9 million, which included non-cash gains of $6.7 million on warrants in 2021 as compared to $2.3 million in the prior year and approximately $2.4 million of stock-based compensation expense in 2021 as compared to $1.7 million in 2020.   49 Table of Contents   Liquidity and Capital Resources    As of December 31, 2021 , we had cash and cash equivalents of $70.9  million and prepaid expenses and other current assets of $1.6  million. We also had $1.4  million of accounts payable and $2.3  million of accru ed expenses and other current liabilities. A significant portion of the accounts payable and accrued expenses are due to work performed in relation to our preclinical activities and our clinical trials. For the years ended December 31, 2021 and 2020, we used approximately $19.0  million a nd $17.8 million of cash in operating activities, respectively, which represents cash outlays for research and development and general and administrative expenses in such periods. The increased cash outflows in 2021 reflect the increase in preclinical and clinical activity over 2020. For the year ended December 31, 2021, net proceeds from financing activities were $74.7  million, pre dominately from the sale of our common stock and warrants. In 2020, approximately $22.5 million was raised predominately through the sale of shares of common stock and the exercise of warrants. Cash used in investing activities for the year ended December 31, 2021 was approximately $0.02  million.   We believe that our cash resources as of December 31, 2021, along with the additional funding received subsequent to year-end, will be sufficient to meet our projected operating requirements, which include a potential increase over our current R&D rate of expenditures, into the year 2024. Such projections are subject to changes in our internally funded preclinical and clinical activities, including unplanned preclinical and clinical activity. We anticipate incurring operating losses for the next several years as we support the preclinical and clinical activities necessary to prepare our drug candidates for successful out licensing, including our efforts to expand our technologies. These factors raise uncertainties about our ability to fund operations in future years. If we need to raise additional capital in order to continue to execute our business plan, there is no assurance that additional financing will be available when needed or that we will be able to obtain financing on terms acceptable to us. A failure to raise sufficient capital could adversely impact our ability to achieve our intended business objectives and meet our financial obligations as they become due and payable.   Stock Offerings   In February 2021, we completed an underwritten public offering of an aggregate of 14,273,684 shares of common stock at a public offering price of $4.75 per share. We granted the underwriters a 30-day option to purchase up to an additional 2,141,052 shares of common stock offered in the public offering. The offering closed on February 5, 2021 and gross proceeds of the offering were approximately $67.8 million, prior to deducting the underwriting discount and other offering expenses. On February 10, 2021, the underwriters of the public offering exercised in full their option to purchase an additional 2,141,052 shares of common stock at the public offering price of $4.75 per share, bringing total gross proceeds to approximately $78.0 million before underwriting discount.   In February 2020 we entered into subscription agreements with certain institutional investors for the sale of up to 1,250,000 shares of our common stock (taking into account the one-for-six reverse stock split completed January 29, 2021) and warrants to purchase 937,501 shares of common stock (taking into account the one-for-six reverse stock split completed January 29, 2021) at a combined public offering price of $4.80 per share and related warrant. The warrants were exercisable commencing six months from the date of issuance at a price of $6.30 per share and will expire five years from the date they are first exercisable. The offering closed on February 10, 2020 and gross proceeds of the offering were approximately $6.0 million, prior to deducting the placement agent fees and other estimated offering expenses.   Lincoln Park Equity Lines   In June 2021, we entered into a Purchase Agreement with Lincoln Park Capital Fund (Lincoln Park Agreement). Pursuant to the terms of the Purchase Agreement, Lincoln Park agreed to purchase from us up to $20.0 million of common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, at the time we signed the Purchase Agreement, we issued 107,788 shares of common stock to Lincoln Park as an initial fee for its commitment to purchase shares of our common stock under the Purchase Agreement, and have agreed to issue Lincoln Park up to an additional 53,893 shares of common stock as commitment shares pro-rata when and if Lincoln Park purchases (at our discretion) the $20.0 million aggregate commitment. As of the date of this report, there have been no issuances under the Lincoln Park Agreement.   In November 2020, we entered into a purchase agreement (the 2020 Purchase Agreement) with Lincoln Park Capital Fund, LLC (Lincoln Park). Pursuant to the terms of the 2020 Purchase Agreement, Lincoln Park agreed to purchase from us up to $22.0 million of our common stock (subject to certain limitations) from time to time during the term of the 2020 Purchase Agreement. Pursuant to the terms of the 2020 Purchase Agreement, at the time we signed the 2020 Purchase Agreement, we issued 126,699 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2020 Purchase Agreement. During the year ended December 31, 2020, pursuant to the 2020 Purchase Agreement, we sold Lincoln Park 638,203 shares of common stock, and issued a total of 133,017 commitment shares, at an average price of $4.30 per share, resulting in gross proceeds of $2.7 million. We terminated the 2020 Purchase Agreement on February 2, 2021.    ATM Agreements   In June 2021, we entered into an At Market Issuance Sales Agreement (2021 ATM Agreement) with Oppenheimer & Co. Inc. Pursuant to the terms of the 2021 ATM Agreement, we may offer and sell, from time to time through Oppenheimer shares of our common stock with an aggregate sales price of up to $50.0 million. As of the date of this report, there have been no issuances under the 2021 ATM Agreement.   In January 2021, we issued 468,684 shares for gross proceeds of $2.9 million using our 2020 ATM Agreement with Oppenheimer & Co., Inc.    In July 2020, we entered into a new At Market Issuance Sales Agreement with Oppenheimer & Co. Inc. (the 2020 ATM Agreement). Pursuant to the terms of the 2020 ATM Agreement, we were able to sell from time to time through Oppenheimer shares of our common stock with an aggregate sales price of up to $15.0 million. During the year ended December 31, 2020, pursuant to the 2020 ATM Agreement, we issued 471,405 shares of common stock at an average price of $6.11 per share, resulting in net proceeds of $2.8 million.   In addition, at December 31, 2020, we had 26,966 shares of our common stock subscribed in ATM transactions under the 2020 ATM Agreement for net proceeds, after deducting commissions and other transaction costs, of approximately $0.1 million at an average selling price of $4.96 per share. Accordingly, we have recorded a subscription receivable of $0.1 million as a reduction of stockholders' equity in our consolidated balance sheet as of December 31, 2020. We terminated the 2020 ATM Agreement on February 2, 2021.   In July 2019, we entered into an at-the-market equity agreement (the 2019 ATM Agreement) with Oppenheimer & Co. Inc. During the year ended December 31, 2021, pursuant to the 2019 ATM Agreement, we issued 1,412,017 shares of common stock at an average price of $8.68 per share, resulting in net proceeds of $11.9 million. We paid a commission to Oppenheimer equal to 3.0% of the gross proceeds from the sale of our common stock under the 2019 ATM Agreement. In the third quarter of 2020, the 2019 ATM Agreement expired and was terminated.   50 Table of Contents   The following table sets forth the primary sources and uses of cash for the years indicated (in thousands):       For the Year Ended December 31,       2021     2020   Net cash used in operating activities   $ (18,951 )   $ (17,771 ) Net cash used in investing activities     (19 )     (374 ) Net cash provided by financing activities     74,724       22,549   Effect of exchange rate changes on cash and cash equivalents     (24 )     34   Net change in cash and cash equivalents   $ 55,730     $ 4,438     As of December 31, 2021, there was $0.3 million of cash on hand in a bank account in Australia and we know of no related limitations impacting our liquidity in Australia.   Cash used in operating activities   Net cash used in operating activities was $19.0  million f or the year ended December 31, 2021 compared to $17.8 million for the year ended December 31, 2020. This increase in use of cash for operations was mainly due to payments for increased clinical trial activity, costs related to manufacturing of additional drug product, and increased consulting and advisory fees as well as an increase in our corporate insurance. These are all a reflection of the ongoing clinical and pre-clinical activity and the associated increase in G&A support for our three core drug technologies.   Cash used in investing activities   Net cash used in investing activities w as $0.02  million f or the year ended December 31, 2021 compared to $0.4 million for the year ended December 31, 2020. The decrease relates to mass spectrometer equipment purchased for the lab in 2020. The equipment is being used to analyze uptake, metabolism, and tissue organ distribution of anti-cancer and anti-viral agents, which is critical for determination of pharmacokinetic and pharmacodynamic parameters of the drug.   Cash provided by financing activities   Net cash provided by financing activities was $74.7  million f or the year ended December 31, 2021 compared to the prior period of $22.5 million. Net cash provided by financing in 2021 consisted primarily of $74.6 million net proceeds from the issuance of common stock, and $0.1 million net proceeds from the exercise of warrants. The prior period financing activities consisted primarily of net proceeds from the issuance of common stock.   Off-Balance Sheet Transactions   We do not engage in off-balance sheet transactions.   Recent Accounting Pronouncements    We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.     Critical Accounting Policies and Significant Judgments and Estimates   Basis of Presentation   The accompanying consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC).   We believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain .   Research and Development Costs   We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of pre-clinical and clinical trials and preparation for clinical trials and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and we include these costs in accrued liabilities in the balance sheets and within research and development expense in the statement of operations. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these third parties.   We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. To date, there have been no material differences from our accrued expenses to actual expenses.   51 Table of Contents   Impairment of Long-Lived Assets   We evaluate the recoverability of our property and equipment and amortizable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable or at a minimum annually during the fourth quarter of the year. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If such review indicates that the carrying amount of property and equipment and amortizable intangible assets is not recoverable, the carrying amount of such asset is reduced to fair value.   Acquired in-process research and development (IPR&D) assets are considered indefinite lived until the completion or abandonment of the associated research and development efforts. We evaluate the recoverability of our IPR&D assets for possible impairment annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of IPR&D assets is measured by a comparison of the carrying amounts its fair value. If such review indicates that the carrying amount of IPR&D assets is not recoverable, the carrying amount of such asset is reduced to fair value.   Components of our Results of Operations and Financial Condition   Operating expenses   We classify our operating expenses into three categories: research and development, general and administrative and depreciation.   Research and development . Research and development expenses consist primarily of:     • costs incurred to conduct research, such as the discovery and development of our product candidates;     • costs related to production of clinical supplies, including fees paid to contract manufacturers and drug manufacturing costs;     • fees paid to clinical consultants, clinical trial sites and vendors, including clinical research organizations, in preparation for clinical trials and our IND and Orphan Drug applications with the FDA; and     • costs related to compliance with drug development regulatory requirements.   We recognize all research and development costs as they are incurred. Pre-clinical costs, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.   We expect our research and development expenses to increase in the future as we advance our product candidates into and through clinical trials and pursue regulatory approval of our product candidates in the United States and Europe. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors including: the quality of our product candidates, early clinical data, investment in our clinical program, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent, if any, we will generate revenue from the commercialization and sale of our product candidates.   General and administrative   General and administrative expense consists of personnel related costs, which include salaries, as well as the costs of professional services, such as accounting and legal, facilities, information technology and other administrative expenses. We expect our general and administrative expense to increase due to the anticipated growth of our business and related infrastructure as well as accounting, insurance, investor relations and other costs associated with becoming a public company.   Depreciation. Depreciation expense consists of depreciation on our property and equipment. We depreciate our assets over their estimated useful life. We estimate leasehold improvements to have a estimated useful life over the term of the lease or the estimated useful life, whichever is shorter; computer equipment to have a 2-year life; software to have a 3-year life, machinery and equipment to have a 2 to 5 year life and furniture and office equipment to have a 2 to 7 year life.   Accounting for warrants    We issued warrants to purchase shares of common stock related to equity transactions in 2017, 2018, 2019, 2020, and 2021. We account for our warrants issued in accordance with Accounting Standards Codification (ASC) Topic 815, Derivatives and Hedging, guidance applicable to derivative instruments, which requires every derivative instrument within its scope to be recorded on the balance sheet as either an asset or liability measured at its fair value, with changes in fair value recognized in earnings for liability classified warrants. Based on this guidance, we determined that certain of our warrants to purchase shares of common stock related to equity transactions in 2017, 2018, 2019, and 2020 meet the criteria for classification as a liability. Accordingly, the warrants were classified as a warrant liability and are subject to fair value remeasurement at each transaction and balance sheet date. The fair value was estimated using the Black-Scholes option pricing model, based on the market value of the underlying common stock at the measurement date, the contractual term of the warrant, risk-free interest rates, expected dividends and expected volatility of the price of the underlying common stock.   52 Table of Contents   Our financial instruments consist primarily of non-trade receivables, account payables, accrued expenses, and a warrant liability. The carrying amount of non-trade receivables, accounts payables, and accrued expenses approximates their fair value because of the short-term maturity of such.   We have categorized our assets and liabilities that are valued at fair value on a recurring basis into three-level fair value hierarchy in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3).   Assets and liabilities recorded in the balance sheets at fair value are categorized based on a hierarchy of inputs as follows:   Level 1 - Unadjusted quoted prices in active markets of identical assets or liabilities. Level 2 - Quoted prices for similar assets or 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 - Unobservable inputs for the asset or liability.   Our financial assets and liabilities recorded at fair value on a recurring basis include the fair value of our warrant liability discussed below. The fair value of this warrant liability associated with the February 2017, February 2018, June 2018, March 2019, April 2019, and February 2020 Offerings (Offerings) are included in long-term liabilities on the accompanying financial statements as of December 31, 2021 and 2020 respectively.    We estimated the fair value of the warrant liability issued in our Offerings under ASC 820 as of their issuance date for financial reporting purposes. We used the Black-Scholes option pricing model (BSM) to determine the fair value of the warrants. The BSM model is acceptable in accordance with GAAP. The BSM requires the use of a number of assumptions including volatility of the stock price, the weighted average risk-free interest rate, and the weighted average term of the warrant.   The risk-free interest rate assumption is based upon observed interest rates on zero coupon US Treasury bonds whose maturity period is appropriate for the term of the warrants and is calculated by using the average daily historical stock prices through the day preceding the grant date.   Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the expected life of the warrants. Beginning in 2020, only the volatility of our stock was used in the BSM as we now have sufficient historic data in our stock price.   Changes in the fair value during the accounting period are shown as other income or expense.   Stock-based compensation   Stock based compensation transactions are recognized as compensation expense in the statement of operations based on their fair values on the date of the grant, with the compensation expense recognized over the period in which a grantee is required to provide service in exchange for the award. We estimate the fair value of options granted using the Black-Scholes option valuation model, and the fair value of restricted stock units using the closing price of our common stock as reported on the date of grant. The Black-Scholes estimate uses assumptions regarding a number of inputs that require us to make significant estimates and judgments. Beginning in 2020, only the volatility of our stock was used in the BSM as we now have sufficient historic data in our stock price.   Income taxes   We account for income taxes using ASC 740 Income Taxes. ASC 740 Income Taxes is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, ASC 740 generally considers all expected future events other than enactments of and changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. Valuation allowances are provided if, considering available evidence, it is more likely than not that the deferred tax assets will not be realized. ASC 740 clarifies the criteria that must be met prior to recognition of the financial statement benefit of a position taken in a tax return. ASC 740 provides a benefit recognition model with a two-step approach consisting of “more-likely-than-not” recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. ASC 740 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the financial statements.   Recent accounting pronouncements   See Note 2 to the Notes to Consolidated Financial Statements in "Item 8 - Financial Statements and Supplementary Data" in this Annual Report for discussion regarding recent accounting pronouncements.   53 Table of Contents   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS   We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide information required under this item.