ATOS US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion of the financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements, which are based on assumptions about the future of our business. Actual results and outcomes could differ materially from those contained in the forward-looking statements. Please read “Forward-Looking Statements” included elsewhere in this Annual Report for additional information regarding forward-looking statements.

Company Overview

We are a clinical-stage biopharmaceutical company developing proprietary innovative medicines in areas of significant unmet medical need in oncology, with a focus on women’s breast cancer and other breast conditions. Our lead drug candidate under development is oral (Z)-endoxifen, which we are developing for both the prevention and treatment of breast cancer.

We have been granted three U.S. patents and one international patent covering our proprietary (Z)-endoxifen, and we have numerous applications pending in the U.S. and in other major countries. We have patent protection covering our proprietary (Z)-endoxifen through November 17, 2038.

Our business strategy is to advance our programs through clinical studies, including potentially with partners, and opportunistically add programs in areas of high unmet medical need through acquisition, minority investment, collaboration or internal development.

Summary of Our Leading Programs

The following is a summary of the status of our major clinical development programs as of the date of this Annual Report:

(Z)-endoxifen. (Z)-endoxifen is an active metabolite of tamoxifen, which is an FDA-approved drug to treat and prevent breast cancer in high-risk women.It is also referred to as a Selective Estrogen Receptor Modulator (SERM). We are developing a proprietary form of (Z)-endoxifen which is administered orally for the potential treatment of breast cancer and reduction of breast density. We have completed four Phase 1 clinical studies (including a study in men) and two Phase 2 clinical studies with our proprietary (Z)-endoxifen (including oral and topical formulations). We have also completed significant pre-clinical development and have developed clinical manufacturing capabilities through qualified third parties.

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(Z)-endoxifen for Neoadjuvant Treatment of Breast Cancer. We are also developing (Z)-endoxifen to treat ER+ HER2- breast cancer in the neoadjuvant setting, which is the administration of a therapy before the main treatment, which is usually surgery. Although there are neoadjuvant treatments for breast cancers that are not ER+, there are few neoadjuvant treatments for ER+ breast cancer which comprises about 78% of all breast cancers.

In October 2022, we received authorization from the U.S. FDA for our Investigational New Drug (IND) application for oral (Z)-endoxifen. The study, “A Randomized Phase 2 Noninferiority Trial of (Z)-endoxifen and Exemestane + Goserelin as Neoadjuvant Treatment in Premenopausal Women with ER+/HER2-Breast Cancer,” also known as “EVANGELINE.” The study is an open-label, randomized, Phase 2 study designed to investigate (Z)-endoxifen for the neoadjuvant treatment of premenopausal women ages 18 and older with early stage (Grade 1 or 2) ER+/HER2- breast cancer.

The study is expected to enroll approximately 180 patients at up to 25 sites. EVANGELINE is a two-part study consisting of a PK Run-in Cohort and a Treatment Cohort. The primary objective of the Treatment Cohort is to evaluate the endocrine sensitive disease (ESD) rate, measured by Ki-67 (a proliferation marker prognostic for disease free survival), after four weeks of treatment with (Z)-endoxifen compared to treatment with current standard of care, exemestane + goserelin. Exemestane is an aromatase inhibitor designed to block the synthesis of estrogen and slow the growth of ER+ cancers. Goserelin is a medication given to block the ovaries from making estrogen, also called ovarian function suppression.

In March 2023, a second Phase 2 trial investigating oral (Z)-endoxifen as a neoadjuvant treatment for women diagnosed with locally advanced ER+ breast cancer was initiated. This trial is a study arm in the ongoing I‐SPY 2 clinical trial. The I-SPY 2 TRIAL is a collaborative effort among academic investigators from major cancer research centers across the U.S., Quantum Leap Healthcare Collaborative, the U.S. FDA, and the Foundation for the National Institutes of Health (FNIH) Cancer Biomarkers Consortium. Approximately 20 patients are being treated with (Z)-endoxifen for up to 24 weeks prior to surgery. Enrollment was completed in January of 2024 for the Phase 2 I-SPY clinical trial.

(Z)-endoxifen for Women with Breast Density. Mammographic breast density (MBD) is an emerging public health issue affecting over 10 millionwomen in the U.S. alone. Dense breast tissue makes mammography less effective. When women with MBD are diagnosed with breast cancer, it is often later stage, which makes treatment outcomes suboptimal. Studies conducted by others have also shown that MBD increases the risk of developing breast cancer and that reducing MBD may reduce the incidence of breast cancer.

In December 2021, we commenced a Phase 2 study of our proprietary oral (Z)-endoxifen. The study, known as the Karisma-(Z)-endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary oral (Z)-endoxifen in healthy premenopausal women with measurable breast density. The primary objective of the study is to determine the dose-response relationship of daily (Z)-endoxifen on breast density reduction. Secondary endpoints will assess safety and tolerability. The study also includes an exploratory endpoint to assess durability of the breast density changes. The study is being conducted in Stockholm, Sweden and includes approximately 240 participants, at full enrollment, who receive daily doses of oral (Z)-endoxifen or placebo for six months after they enroll. The study fully enrolled in November 2023 and we expect primary data in the second half of 2024.

Based on input from the FDA and Swedish Medical Products Agency, reduction in MBD may not be an approvable indication unless we can demonstrate that our (Z)-endoxifen also reduces the incidence of breast cancer. We may therefore conduct additional studies of (Z)-endoxifen to assess its correlation with the risk of breast cancer and/or reduction in the incidence of new breast cancers.

(Z)-endoxifen for Ductal Carcinoma In Situ.Ductal carcinoma in situ (DCIS) is a pre-cancerous lesion of the breast. It rarely produces symptoms, or abreast lump one can feel, typically being detected through screening mammography. In some cases, DCIS may become invasive and spread to other tissues, but there is no way of determining which lesions will remain stable without treatment, and which will go on to become invasive. This uncertainty can result in aggressive and unnecessary treatment approaches that can have harmful side effects without significant benefit.

In October 2023, Quantum Leap Healthcare Collaborative announced the initiation of the Phase 2 DCIS: Re-Evaluating Conditions for Active Surveillance Suitability as Treatment (RECAST) study. (Z)-endoxifen is being investigated as part of this platform trial, which offers women with DCIS six months of neoadjuvant treatment with the intent of determining their suitability for long-term active surveillance without surgery. Approximately 100 patients will be treated with (Z)-endoxifen. The study incorporates both a neoadjuvant therapy phase, with patients at high risk for progression to invasive disease proceeding to surgery, followed by an extended surveillance phase for low-risk patients.

Investment in CAR-T Company.In December 2022, we closed our investment in Dynamic Cell Therapies, Inc. (DCT), a privately-held, venture capital-backed, developer of CAR-T therapies. DCT is in the pre-clinical phase of developing controllable CAR-T cells to address difficult-to-treat cancers. Its platform technology of dynamic control of engineered T-cells is designed to improve the safety, efficacy, and durability of CAR-T cell therapies. While its initial focus is hematologic malignancies, its innovative approach could also have broad applicability in solid tumors and autoimmune diseases.

Research and Development Phase

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We are in the research and development phase and are not currently marketing any products. We do not anticipate generating revenue unless and until we develop and launch our pharmaceutical programs.

Commercial Lease Agreement

On November 22, 2022, we entered into an operating lease with WW 107 Spring Street LLC for office space in Seattle, Washington. We agreed to pay monthly rent of $2 thousand for a term of 12 months beginning January 1, 2023. On June 26, 2023, we terminated the existing lease without additional cost and entered a new operating lease for monthly rent of $3 thousand for a term of 12 months commencing July 1, 2023, for a larger office space at the same location.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. We base our estimates on our historical experience, known trends and events, and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the following are the most critical accounting estimates used in the preparation of our Consolidated Financial Statements.

Investments in Equity Securities

Our investment in DCT Series Seed Preferred Stock does not have a readily determinable fair value, so we have elected to measure the investment at cost less impairment, adjusted to fair value if there are observable price changes in orderly transactions for an identical or similar investment of the same issuer. As part of preparing our Consolidated Financial Statements, we considered qualitative impairment factors in determining if an impairment analysis is required. Specifically, during 2023, we 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, we performed a fair value measurement using a dynamic options approach and an adjusted book value approach, giving each a weighting of 50% probability.

We used the dynamic options approach, which requires assumptions regarding the expected average volatility of comparable companies, the expected term of our investment, and an estimation of an appropriate risk-free interest rate over the expected term of our investment. The expected stock price volatility assumption is based upon the average historic volatility of comparable public clinical stage immunotherapy or CAR-T companies. The expected term of our investment is 3.5 years and the risk-free interest rate used is based upon prevailing short-term interest rates over the expected term of the investment.

An adjusted book value approach was also considered due to DCT's limited cash on hand, status of current fundraising efforts and the estimated timing of a deemed liquidation event occurring. This approach requires an adjustment to each balance sheet account to estimate the value upon liquidation.

Our resulting valuation concluded that the investment was impaired, and accordingly, an impairment charge of $3.0 million was recorded in the Consolidated Statements of Operations for the year ended December 31, 2023. No impairment was recorded for the year ended December 31, 2022.

While assumptions used to calculate and account for the investment in non-marketable equity securities represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment. If underlying assumptions and estimates change, our investment may be impaired further in future periods.

Research and Development Expenses

As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and work orders, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the associated cost incurred for the services, including, in some cases, when we have not yet been invoiced or otherwise notified of actual costs. R&D costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for our drugs under development, expenses associated with preclinical studies, clinical trials and associated salaries, bonuses, stock-based compensation and benefits. 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 his total hours spent on research and development activities.

We have entered into various research and development contracts with CROs, contract manufacturing organizations (CMOs) and other companies. The majority of our service providers invoice us monthly for services performed, however, payments under some of these contracts may be required in advance of the services being performed, for example when a contract requires an initial

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payment at the outset of the contract. Payments made in advance of performance of services are reflected in the Consolidated Balance Sheets as prepaid expenses.

We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with CROs and other companies that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or prepaid expense accordingly. We estimate our accrued expenses as of each balance sheet date in the Consolidated Financial Statements based on facts and circumstances known to us at that time. However, additional information may become available to us, which may allow us to make a more accurate estimate in future periods. There have not been material adjustments to our estimates in the past but, if we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates.

Stock-Based Compensation

We measure all stock option awards granted to employees, non-employee directors and consultants based on the fair value on the date of grant, and we recognize compensation expense over the requisite service period, which is generally the vesting period of the award. The straight-line method of expense recognition is applied to all awards with service-only conditions. We account for forfeitures as 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 our common stock, the expected life of the options, an expectation regarding future dividends on our common stock, an estimate of the appropriate risk-free interest rate and the expected term. Our expected common stock price volatility assumption is based upon the historic volatility of our stock price. The expected life for stock option grants is based on an average of the contractual term of the options of 10 years with the average vesting term of one to four years. The dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future. The risk-free interest is based upon prevailing short-term interest rates over the expected lives of the options.

While assumptions used to calculate and account for stock-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgment.

Results of Operations

Comparison of Years Ended December 31, 2023 and 2022

Revenue and Cost of Revenue. For the years ended December 31, 2023 and 2022, we had no source of revenue and no associated cost of revenue.

Operating Expenses. Total operating expenses were $31.4 million for the year ended December 31, 2023, which was an increase of $3.7 million, from the year ended December 31, 2022 of $27.7 million. As (Z)-endoxifen is our only product candidate for which we currently incur R&D expense we have not further disaggregated R&D expenses. Factors contributing to the increased operating expenses in the year ended December 31, 2023 are explained below.

The following table provides a breakdown of major categories within R&D expense for the years ended December 31, 2023 and 2022, together with the dollar change in those categories (in thousands):

Year Ended December 31, 2023 Year Ended December 31, 2022 Increase (decrease)

Research and Development Expense

R&D Expenses. R&D expenses for the year ended December 31, 2023, were $17.3 million, an increase of $2.3 million from total R&D expenses for the year ended December 31, 2022 of $15.1 million. Key changes were as follows:

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The following table provides a breakdown of major categories within General and Administrative (G&A) expenses for the years ended December 31, 2023 and 2022, together with the dollar change in those categories (in thousands):

Year Ended December 31, 2023 Year Ended December 31, 2022 Increase (decrease)

General and Administrative Expense

G&A Expenses. G&A expenses for the year ended December 31, 2023 were $14.0 million an increase of $1.4 million from total G&A expenses for year ended December 31, 2022 of $12.6 million. Key changes were as follows:

Impairment Charge on Investment in Equity Securities. For the year ended December 31, 2023, we wrote down our investment in DCT by $3.0 million due to an impairment charge. For the year ended December 31, 2022 there were no impairment charges related to our equity securities. Refer to Note 4 to the Consolidated Financial Statements in Item 8 of this Annual Report.

Interest Income. Interest income was $4.3 million for the year ended December 31, 2023, an increase of $3.5 million from interest income of $0.9 million for the year ended December 31, 2022. The increase was due to the higher average balance invested in money market funds of $26.5 million and higher average interest rates for the year ended December 31, 2023 compared to the prior year.

Income Taxes. We did not record an income tax expense or benefit for the years ended December 31, 2023 and 2022 due to uncertainty regarding utilization of our net operating loss carryforwards and our history of losses.

Liquidity and Capital Resources

We have incurred net losses and negative operating cash flows since inception. For the year ended December 31, 2023, we recorded a net loss of $30.1 million and used $20.9 million of cash in operating activities. As of December 31, 2023, we had $88.5

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million in unrestricted cash and cash equivalents and working capital of $87.0 million. We believe we have sufficient cash on hand to fund our projected operating requirements for at least the next 12 months.

As of December 31, 2023, we had cash, cash equivalents and restricted cash of $88.6 million.

Net Cash Flows from Operating Activities. Net cash used in operating activities was $20.9 million for the year ended December 31, 2023, compared to net cash used of $20.8 million for the same period in 2022, an increase of $0.1 million. Cash used in operating activities for the year ended December 31, 2023 primarily related our net loss of $30.1 million, adjusted for non-cash items such as non-cash stock-based compensation expense of $4.6 million, non-cash impairment charge on investment in equity securities of $3.0 million and net cash inflows from a change in our operating assets and liabilities of $1.5 million. Cash used in operating activities for the year ended December 31, 2022 primarily related to our net loss of $27.0 million, adjusted for non-cash share-based compensation expense of $6.8 million and net cash outflows from a change in our operating assets and liabilities of $0.6 million.

Net Cash Flows from Investing Activities. Net cash used in investing activities was $14 thousand for the year ended December 31, 2023, compared to net cash used in investing activities of $4.7 million for the year ended December 31, 2022. Current period cash used in investing activities was primarily related to purchases of new computers while prior period cash used in investing activities was primarily related to the investment in equity securities of $4.7 million.

Net Cash Flows from Financing Activities. Net cash used in financing activities was $1.5 million for the repurchase of common stock under the Share Repurchase Program for the year ended December 31, 2023. No cash was used in financing activities during the year ended December 31, 2022.

Funding Requirements

We expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs, including related clinical studies and other programs in the pipeline. Our future funding requirements will depend on many factors, including:

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the costs of manufacturing drugs under development, the costs associated with clinical and non-clinical trials and associated salaries and benefits;

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the extent to which we enter into contracts or invest in third parties in order to further develop our drug candidates;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending other intellectual property-related claims; and

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the costs and fees associated with the discovery, acquisition or license of additional product candidates or technologies.

If we are unable to raise additional capital when needed on reasonable terms, if at all, we could be forced to curtail or cease our operations. Our future capital uses and requirements will depend on the time and expenses needed to begin and continue clinical trials for our new drug developments.

Additional funding may not be available to us on acceptable terms or at all. Continued uncertain market and macroeconomic conditions, including due to inflationary pressures, high interest rates, general economic slowdown or a recession, the prospect of a shutdown of the U.S. federal government, foreign exchange rate volatility, financial institution instability, changes in monetary policy and increasing geopolitical instability, may limit our ability to access capital. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, we may raise additional funds by issuing equity securities or by equity offerings, collaboration agreements, debt financings or licensing arrangements.

If adequate funds are not available, we may be required to terminate, significantly modify or delay our development programs, reduce our planned commercialization efforts, or obtain funds through collaborators that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. Further, we may elect to raise additional funds even before we need them if we believe the conditions for raising capital are favorable.

Although we submitted a proposal to our stockholders to amend our amended and restated certificate of incorporation to increase the number of authorized shares of our common stock for various potential purposes, including potential capital raising transactions, our stockholders did not approve the proposal at our 2021 and 2022 annual meetings of stockholders nor did they approve it at a special meeting of stockholders held in September 2021. A lack of authorized shares may limit our ability to raise capital when needed.

On September 26, 2023, we were notified by Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because our common stock failed to maintain a minimum closing bid price of $1.00 per share for 30 consecutive business days. To regain compliance, we were required to maintain a minimum closing bid price of $1.00 per share for a minimum of 10 consecutive business days. On March 15, 2024, we received written notice from Nasdaq that we had regained compliance with the minimum closing bid price requirement under Nasdaq Listing Rule 5550(a)(2).

Contractual Obligations

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Our contractual obligations represent our future cash commitments and liabilities under agreements with third party clinical trial service providers. Apart from contracts with a third party clinical trial service provider, such agreements are cancellable upon written notice by us. The non-cancellable contracts expire upon completion of the clinical trial and release of the final report, or the contract may be terminated by the clinical trial service provider, by the FDA or another governmental agency. As of December 31, 2023, our estimated non-cancellable commitment was $6.1 million which will be paid over the term of the clinical trials which are expected to be complete in 2025.

Share Repurchase Program

In June 2023, our Board of Directors (the Board) authorized a program to repurchase up to $10.0 million of our common stock (the Share Repurchase Program). The Share Repurchase Program does not obligate us to acquire any specific number of shares. Under the Share Repurchase Program, shares of common stock may be repurchased using a variety of methods, including privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, as part of accelerated share repurchases and other methods. The timing, manner, price and amount of any repurchases are determined by the Board in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions. The program was originally set to expire on December 31, 2023, however, on December 18, 2023 the Board authorized an extension of the program through December 31, 2024. During the year ended December 31, 2023, 1,320,046 shares were repurchased under the Share Repurchase Program for a total cost of $1.5 million. As of December 31, 2023, $8.5 million remained available for future stock repurchases under the Share Repurchase Program.

Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This standard requires disclosure of significant segment expenses and other segment items by reportable segment. The ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025. We are currently assessing the potential impact of this ASU.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard enhances disclosures related to income taxes, including the rate reconciliation and information on income taxes paid. The ASU becomes effective January 1, 2025. We are currently assessing the potential impact of this ASU.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this item pursuant to Item 305(e) of Regulation S-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are set forth beginning on page 64 of this Annual Report and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023, 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

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ensure that information required to be disclosed in our reports filed or furnished under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal 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, 2023, our Principal Executive Officer and Principal 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 Over Financial Reporting

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 in the United States.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, 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, 2023. Because we are a non-accelerated filer, 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

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 the quarter ended December 31, 2023, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

(a) Announcement of 2024 Annual Stockholders’ Meeting Date and Related Information

We intend to hold our 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”) on June 27, 2024. Because the date of the 2024 Annual Meeting has been changed by more than 30 days from the anniversary of our 2023 Annual Meeting of Stockholders, the deadline for the submission of stockholder proposals for inclusion in our proxy materials relating to the 2024 Annual Meeting in accordance with Rule 14a-8 under the Exchange Act will be the close of business (6:00 p.m. Pacific Time) on April 15, 2024, which we believe is a reasonable time before we expect to begin to print and send our proxy materials. Any proposal received after such date will be considered untimely.

(b) Trading Plans

During the quarter ended December 31, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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.

DIRECTORS

The Amended and Restated Certificate of Incorporation of the Company provides that our Board is to be divided into three classes nearly equal in number as reasonably possible, with directors in each class serving three-year terms. The total Board size is currently fixed at seven directors. The Class I directors (whose terms expire at the 2025 Annual Meeting of Stockholders) are Steven C. Quay, M.D., Ph.D. and Jonathan Finn, C.F.A. The Class II directors (whose terms expire at the 2026 Annual Meeting of Stockholders) are Stephen J. Galli, M.D., Richard I. Steinhart and Tessa Cigler, M.D., M.P.H. The Class III directors (whose terms expire at the 2024 Annual Meeting of Stockholders) are Shu-Chih Chen, Ph.D. and H. Lawrence Remmel, Esq.

There are no family relationships among any of our directors or executive officers, except for Dr. Chen, who is married to Dr. Quay.

Tessa Cigler, M.D., M.P.H. (2024) 50 Director 2026 II

H. Lawrence Remmel, Esq. (2012) 72 Director 2024 III

(1) As of April 1, 2024

Class I Directors

Steven C. Quay, MD., Ph.D. Steven C. Quay, M.D., Ph.D. has served as Chief Executive Officer, President and Chairman of the Board of Directors of the Company since the Company was incorporated in April 2009. Dr. Quay is certified in Anatomic Pathology with the American Board of Pathology, completed both an internship and residency in anatomic pathology at Massachusetts General Hospital, a Harvard Medical School teaching hospital, and is a former faculty member of the Department of Pathology, Stanford University School of Medicine. Dr. Quay is a named inventor on 90 U.S. patents, 862 published US and international patent applications, and is named inventor on patents covering seven pharmaceutical products that have been approved by the U.S. Food and Drug Administration. Dr. Quay received an M.D. in 1977 and a Ph.D. in 1975 from the University of Michigan. He received his B.A. degree in biology, chemistry and mathematics from Western Michigan University in 1971. He is a director and the Chair of the Governance Committee, of the Taipei-American School in Taipei, Taiwan. He was selected to serve on the Company’s Board of Directors because of his role as a founder of the Company, as well as his qualifications as a physician and the principal researcher overseeing the research, preclinical, clinical and regulatory development of the Company’s pharmaceutical programs.

Jonathan Finn, C.F.A. Jonathan Finn has served as a director of the Company since November 2023. Mr. Finn has worked at Vantage Consulting Group, an investment advisory firm, since 1995 and served as Executive Vice President and Chief Investment Officer at Vantage since 2005. In this role, he directs investment strategy, asset allocation, manager selection and portfolio construction. Mr. Finn is also a Founding Partner of Scientia Ventures, a manager of venture capital funds that invest in companies targeting computational biology and chemistry, the digitization of medicine, digital therapies, and traditional drug development businesses at the cutting edge of the life sciences industry and has served in this role since 2006. Earlier in his career, Mr. Finn was a portfolio manager for the Lindner family of mutual funds, serving as co-manager for the Small Cap and Asset Allocation funds from 2000 to 2001. He currently serves as director of Verigraft AB, a regenerative medicine venture, Rose Pharma LLC, a development stage specialty pain company, and Solör Bioenergy Holdings AB, a bioenergy business. Mr. Finn has a B.A. in Economics from the University of Virginia and holds the Chartered Financial Analyst designation. Mr. Finn has been selected to serve on the Company’s Board of Directors because of his qualifications as a business executive and his familiarity with investment strategy in the biotechnology sector.

Class II Directors

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Stephen J. Galli, M.D. Dr. Galli has served as a director of the Company since July 2011. Dr. Galli has been a Professor of Pathology and of Microbiology & Immunology and the Mary Hewitt Loveless, M.D., Professor, Stanford University School of Medicine, Stanford, California since February 1999. He served as Chair of the Department of Pathology at Stanford University School of Medicine from 1999 to 2016. Before joining Stanford, he was on the faculty of Harvard Medical School. He holds 16 U.S. patents and has over 490 publications. He is past president of the American Society for Investigative Pathology, past president of the Collegium Internationale Allergologicum, and past president of the Pluto Club (Association of University Pathologists). In addition to receiving several awards for his research, and being elected to the National Academy of Medicine (USA), the Accademia Nazionale de Lincei (Rome, Italy), and the American Clinical and Climatological Association, he was recognized with the 2010 Stanford University President’s Award for Excellence through Diversity for his recruitment and support of women and underrepresented minorities at Stanford University. He received his B.A. degree in biology, magna cum laude, from Harvard College in 1968 and his M.D. degree from Harvard Medical School in 1973 and completed a residency in anatomic pathology at the Massachusetts General Hospital in 1977. Dr. Galli has been selected to serve on the Company’s Board of Directors because of his qualifications as a professor and physician, and his specialized expertise as a pathologist.

Richard I. Steinhart. Mr. Steinhart has served as a director of the Company since March 2014. Mr. Steinhart is currently the Senior Vice President and Chief Financial Officer of BioXcel Therapeutics, Inc., a clinical-stage biopharmaceutical company, which he joined in October 2017. From October 2015 to June 2017, he was Vice President and Chief Financial Officer of Remedy Pharmaceuticals, Inc., a privately held pharmaceuticals company. From January 2014 until he joined Remedy Pharmaceuticals, Mr. Steinhart acted as an independent financial consultant to various companies in the biotechnology and medical device industries. From April 2006 to December 2013, Mr. Steinhart was an executive at MELA Sciences, Inc., serving as its Senior Vice President, Chief Financial Officer, Treasurer and Secretary. From 1992 to 2006, Mr. Steinhart was Managing Director at Forest St. Capital/SAE Ventures. Earlier, he served as Vice President and Chief Financial Officer at Emisphere Technologies from 1991 to 1992 and as General Partner and Chief Financial Officer of CW Group Inc. Mr. Steinhart is a Member of the Board of Directors of Actinium Pharmaceuticals where he is Chairman of the Audit Committee. From 2004 to 2012, Mr. Steinhart was a Member of the Board of Directors of Manhattan Pharmaceuticals and was Chairman of the Audit Committee. Mr. Steinhart received his B.B.A. and M.B.A. degrees from Pace University. Mr. Steinhart has been selected to serve on the Company's Board of Directors because of his qualifications as a business executive and audit committee financial expert, and his prior experience as a Chief Financial Officer, director and committee member of public companies.

Tessa Cigler, M.D., M.P.H. Dr. Cigler joined the Company as a director in March 2024. Dr. Cigler is a medical oncologist whose work is dedicated to the treatment and prevention of breast cancer. Dr. Cigler joined the Cornell faculty in August 2007 as a medical oncologist and clinical investigator at the Weill Cornell Breast Center. As a member of the Weill Cornell Breast Center research team, she heads several clinical trials. Dr. Cigler received her undergraduate degree from Harvard College, and her M.D. from Duke University School of Medicine. She also holds a Master’s in Public Health from the Harvard School of Public Health. She completed her residency in Internal Medicine at New York Presbyterian Hospital Weill Cornell Medical Center, followed by a fellowship in Medical Oncology and Hematology at the Dana-Farber Harvard Cancer Center.

Class III Directors

Shu-Chih Chen, Ph.D. Dr. Chen has served as a director since April 2009. She was a founder of the Company and served as Chief Scientific Officer of the Company since it was incorporated in April 2009 through August 2014. Prior to joining the Company, she was an Associate Professor at National Yang Ming University, Taipei, Taiwan, and served as the principal investigator of an NIH RO1 grant, studying tumor suppression by gap junction protein connexin 43, at the Department of Molecular Medicine at Northwest Hospital, Seattle, WA. She has two issued U.S. patents and 20 pending U.S. patent applications related to cancer therapeutics. Dr. Chen received her Ph.D. degree in microbiology and public health from Michigan State University in 1992 and has published extensively on molecular oncology. She received her B.S. degree in medical technology from National Yang Ming University, Taipei, Taiwan in 1984. Dr. Chen has been selected to serve on the Company’s Board of Directors because of her role as a founder of the Company and her qualifications in medical technology and as a professor and researcher in the field of cancer therapeutics.

H. Lawrence Remmel, Esq. Mr. Remmel has served as a director of the Company since February 2012. He is currently a partner of the law firm Pryor Cashman LLP, located in New York City, where he chairs the Banking and Finance practice group. Mr. Remmel joined Pryor Cashman in 1988. His practice includes corporate and banking financings, issues relating to the Investment Company Act of 1940, and intellectual property and licensing issues, in particular in the biotechnology and biocosmeceutical areas. Mr. Remmel previously served on the Board of Advisors of CytoDel, LLC, an early-stage bio-pharmaceutical company developing products for bio-defense, neuronal drug delivery, and musculoskeletal and aesthetic medicine. In February 2018, he became a director of CytoDel, Inc., the successor to CytoDel LLC. In March 2019 he became a director of Aufbau Holdings Limited, an Irish limited company, developing therapeutics in ophthalmology and other areas. He was an associate of the law firm Reboul, MacMurray, Hewitt, Maynard & Kristol from 1984 to 1988, and began his legal career at Carter, Ledyard & Milburn, where he was an associate from 1979 to 1984. He was admitted to the New York bar in 1980 and is a member of the New York State Bar Association. He received his J.D. from the Washington & Lee University School of Law in 1979 and his B.A. from Princeton University in 1975. He currently is a doctoral candidate in the Graduate School of Life Sciences of the University of Utrecht, in the Department of Clinical and Translational Oncology, with a thesis project in hyperplasia and early-stage breast cancer. Mr. Remmel has been selected to serve on the Company’s

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Board of Directors because of his substantial experience as a corporate attorney advising biotechnology companies and his familiarity with the fiduciary duties and the regulatory requirements affecting publicly traded companies.

Board of Directors Transition

On October 5, 2023, Greg Weaver resigned from his role as our Executive Vice President and Chief Financial Officer and as a member of our Board and Heather Rees succeeded Greg Weaver as SVP, Finance and Accounting and Principal Financial and Accounting Officer. On November 8, 2023, Jonathan Finn was appointed by the Board to succeed Greg Weaver to serve as a Class I director until the Company’s 2025 Annual Meeting of Stockholders. On March 9, 2024, the Board expanded its size and appointed Dr. Tessa Cigler to the Board to serve as a Class II director until the Company’s 2026 Annual Meeting of Stockholders.

Compensation Committee Interlocks

None of the members of our Compensation Committee has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.

EXECUTIVE OFFICERS

Our current executive officers and their respective ages and positions are set forth in the following table.

Name Age(1) Position

Executive Officers:

Heather Rees, CPA (inactive) 51 SVP, Finance and Principal Accounting Officer

(1) As of April 1, 2024

(2) For Dr. Quay's biographical information, see “Directors” above.

Heather Rees., CPA (inactive). Heather Rees has served as the Company’s Senior Vice President, Finance and Principal Accounting Officer since 2023. Prior to that time, Ms. Rees served as the Company’s Vice President of Finance & Accounting since 2021 and controller since 2017. Ms. Rees previously spent ten years working as an independent financial consultant serving public and private companies. She began her career with Deloitte & Touche and worked for nine years in the audit practice. Ms. Rees earned a Bachelor of Business Administration in Accounting from Gonzaga University.

Audit Committee and Audit Committee Financial Expert

Our Board has a separately designated Audit Committee comprised solely of independent directors. Mr. Steinhart qualifies as an “audit committee financial expert,” as that term is defined in the rules and regulations established by the SEC, and all members of the Audit Committee are “financially literate” under Nasdaq listing rules.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Non-employee director compensation is generally reviewed and set annually at the Board meeting held in connection with the Annual Stockholder Meeting. The non-employee directors of the Company received the following for service on the Board from May 2023 through May 2024:

● upon joining the Board, an initial fee of $50,000 in cash;

● an annual cash payment of $50,000 for each board member; and

● an annual grant of options exercisable for 125,000 shares.

The Compensation Committee has engaged Aon Consulting Inc. to provide advice regarding the amount and form of director compensation. Based on their compensation analysis, and to more closely align with our peers, the annual grant of options was increased in May 2023 from 50,000 shares to 125,000 shares. All other Board compensation was unchanged.

In addition to the above, annual compensation for service on the Audit Committee is $20,000 for the Chair and $15,000 for each committee member, paid in cash quarterly. Annual compensation for service on the Compensation Committee and Nominating and Governance Committee is $15,000 for the Chair and $10,000 for each committee member, paid in cash quarterly. The independent board members are also reimbursed on a case-by-case basis up to a pre-set amount for actual out of pocket expenses for graduate level course work in fields related to the business of the Company, though no such reimbursements were made with respect to 2023.

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The employee directors receive no compensation for their board service. Pursuant to the policies of Pryor Cashman, the law firm of which Mr. Remmel is a partner, the compensation Mr. Remmel receives for his services as a director (other than expense reimbursement) is paid to the firm directly. All directors receive reimbursement for reasonable travel expenses. The following table sets forth information regarding compensation earned by our non-employee directors during the fiscal year ended December 31, 2023:

(4) Mr. Finn was added to the Board on November 8, 2023.

EXECUTIVE COMPENSATION

Remuneration of Officers

Our Compensation Committee is responsible for reviewing and evaluating key executive employee base salaries, setting goals and objectives for executive bonuses and administering benefit plans. The Compensation Committee provides advice and recommendations to our Board of Directors on such matters.

Summary Compensation Table

The following table sets forth the compensation earned by our President and Chief Executive Officer and Senior Vice President of Finance and Accounting, and our two former Chief Financial Officers (together, the “2023 Named Executive Officers”) for fiscal year 2023 and, in the case of Dr. Quay and Mr. Guse, fiscal year 2022:

Finance and Accounting

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(2) Amounts represent the annual performance bonus.

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Outstanding Equity Awards at Fiscal Year-End

The following table shows information regarding our outstanding equity awards at December 31, 2023 for the 2023 Named Executive Officers under the Company’s Incentive Plans:

(1) Option vests quarterly over two years from the date of grant.

(2) Option accelerated upon termination per Mr. Guse's employment agreement.

Employment Agreements

Employment Agreement with Steven Quay, M.D., Ph.D.

The Company entered into an employment agreement with Dr. Quay on September 27, 2010, to act as the Company’s Chief Executive Officer. The agreement provided for an initial base salary of $250,000, which was amended over the years and has been subsequently increased to $705,910 for 2023, with an annual target bonus of up to 55% of Dr. Quay’s then-current base salary, payable upon the achievement of performance goals to be established annually by the Compensation Committee.

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The goals for fiscal 2023 included (1) completion of enrollment in the Endoxifen Phase 2 clinical study in women with mammographic breast density, (2) completion of the PK run-in cohort for the Evangeline Phase 2 neoadjuvant trial; (3) acquisition or development of additional programs; (4) commencement of one or more additional studies, and (5) accomplishment of one or more specified "stretch goals." On January 16, 2024, the Compensation Committee reviewed the performance of Dr. Quay for 2023 against these goals and determined that his bonus for 2023 was 121% of potential, or $469,783.

During the employment term, the Company will make available to Dr. Quay employee benefits provided to other key employees and officers of the Company. To the extent these benefits are based on length of service with the Company, Dr. Quay will receive full credit for prior service with the Company. Dr Quay is entitled to participation in health, hospitalization, disability, dental and other insurance plans that the Company may have in effect for other executives, all of which shall be paid for by the Company with contribution by Dr. Quay as set for the other executives, as and if appropriate.

Dr. Quay has also agreed that, for the period commencing on the date of his employment agreement with the Company and during the term of his employment and for a period of 12 months following termination of his employment with the Company that he will not compete with the Company in the United States. The employment agreement also contains provisions relating to confidential information and assignment of inventions, which require Dr. Quay to refrain from disclosing any proprietary information and to assign to the Company any inventions, or future products, research, or development, or which result from work they perform for the Company or using its facilities.

Employment Letter with Heather Rees

The Company is party to an employment letter with Heather Rees dated as of October 6, 2023, pursuant to which she was promoted to act as the Company’s Senior Vice President, Finance and Principal Accounting Officer. The agreement provided for an initial base salary of $360,000, with an annual target bonus of up to 35% of Ms. Rees' then-current base salary, payable upon the achievement of performance goals to be established annually by the Compensation Committee.

The goals for fiscal 2023 included (1) completion of enrollment in the Endoxifen Phase 2 clinical study in women with mammographic breast density, (2) completion of the PK run-in cohort for the Evangeline Phase 2 neoadjuvant trial (3) acquisition or development of additional programs (4) commencement of one or more additional studies, and (5) accomplishment of one or more specified "stretch goals." On January 16, 2024, the Compensation Committee reviewed the performance of Ms. Rees for 2023 against these goals and determined that her bonus for 2023 was 121% of potential, or $152,460.

Employment Agreement with Kyle Guse

The Company entered into an employment agreement with Mr. Guse to act as the Company’s Chief Financial Officer, General Counsel and Secretary. The agreement was amended on May 18, 2016 and provided for a base salary of $364,000, which was amended over the years and was increased to $466,658 for 2023, with an annual target bonus of up to 45% of Mr. Guse’s then-current base salary, payable upon the achievement of performance goals to be established annually by the Compensation Committee.

The goals for fiscal 2023 included (1) completion of enrollment in the Endoxifen Phase 2 clinical study in women with mammographic breast density, (2) completion of the PK run-in cohort for the Evangeline Phase 2 neoadjuvant trial; (3) acquisition or development of additional programs; (4) commencement of one or more additional studies, and (5) accomplishment of one or more specified "stretch goals." In accordance with his severance agreement, Mr. Guse was paid his pro-rata share of his bonus for 2023. Refer below for severance benefits paid to Mr. Guse.

During the employment term, the Company was required to make available to Mr. Guse employee benefits provided to other key employees and officers of the Company. To the extent these benefits were based on length of service with the Company, Mr. Guse was entitled to full credit for prior service with the Company. Mr. Guse was entitled to participation in health, hospitalization, disability, dental and other insurance plans that the Company may have had in effect for other executives, all of which were to be paid for by the Company with contribution by Mr. Guse as set for the other executives, as and if appropriate.

Mr. Guse has also agreed that, for the period commencing on the date of his employment agreement with the Company and during the term of his employment and for a period of six months following termination of his employment with the Company that he will not compete with the Company in the United States. The employment agreement also contains provisions relating to confidential information and assignment of inventions, which require Mr. Guse to refrain from disclosing any proprietary information and to assign to the Company any inventions, or future products, research, or development, or which result from work they perform for the Company or using its facilities.

Employment Agreement with Greg Weaver

The Company entered into an employment agreement with Mr. Weaver on June 1, 2023, to act as the Company’s Executive Vice President and Chief Financial Officer. The agreement provided for an initial base salary of $450,000, with an annual target bonus of up to 45% of Mr. Weaver’s then-current base salary, payable upon the achievement of performance goals to be established annually by the Compensation Committee.

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The goals for fiscal 2023 included (1) completion of enrollment in the Endoxifen Phase 2 clinical study in women with mammographic breast density, (2) completion of the PK run-in cohort for the Evangeline Phase 2 neoadjuvant trial, (3) acquisition or development of additional programs, (4) commencement of one or more additional studies, and (5) accomplishment of one or more specified "stretch goals." Mr. Weaver did not become eligible for payment of a bonus for 2023 in connection with his termination of employment.

The agreement also provided for payment of a one-time signing bonus of $125,000, which was subject to pro-rata repayment in connection with his termination of employment.

During the employment term, Mr. Weaver was eligible to participate in the Company’s employee benefit plans as in effect from time to time on the same basis as other senior executives.

Mr. Weaver also entered into an agreement with the Company relating to confidential information and assignment of inventions, which requires Mr. Weaver to refrain from disclosing any proprietary information and to assign to the Company any inventions, or future products, research, or development, or which result from work they perform for the Company or using its facilities.

Severance Benefits and Change in Control Arrangements

The Company has agreed to provide the severance benefits and change in control arrangements described below to its named executive officers.

Dr. Steven Quay

Pursuant to his employment agreement, if (i) the Company terminates the employment of Dr. Quay without cause, or (ii) Dr. Quay terminates his employment for good reason, then Dr. Quay will be entitled to receive all accrued but unpaid compensation including pro-rated bonus, plus a severance payment equal to 12 months of base salary. In addition, upon such event, the vesting of all shares of Common Stock underlying unvested options then held by Dr. Quay will accelerate, and the options will remain exercisable for the remainder of their terms. The cash severance payment is required to be paid in substantially equal installments over a period of six months beginning on the Company’s first payroll date that occurs following the 30th day after the effective date of termination of Dr. Quay’s employment, subject to certain conditions. The Company will not be required, however, to pay any severance pay for any period following the termination date if Dr. Quay materially violates certain provisions of his employment agreement and the violation is not cured within 30 days following receipt of written notice from the Company containing a description of the violation and a demand for immediate cure.

In addition, under the terms of his employment agreement, in the event of a “change in control” of the Company (as defined in the employment agreement) during Dr. Quay’s employment term, Dr. Quay will be entitled to receive a one-time payment equal to 2.9 times his base salary, and the vesting of all outstanding equity awards then held by Dr. Quay will accelerate such that they are fully vested as of the date of the change in control.

Heather Rees

Pursuant to her employment agreement, if (i) the Company terminates the employment of Ms Rees without cause, or (ii) Ms. Rees terminates her employment for good reason, in either event not within 30 days before or 12 months after a change in control, she will be entitled to receive (a) a pro rata portion of the actual bonus that would have been earned for the year of termination, based on the days employed during such year, payable on the date when bonuses are otherwise paid to company employees and (b) full acceleration of the vesting of all outstanding equity awards.

Kyle Guse

Mr. Guse, ceased to serve as the Company’s General Counsel and Chief Financial Officer as of May 26, 2023. Pursuant to his employment agreement, Mr. Guse became entitled to receive all accrued but unpaid compensation including a pro-rated bonus, plus a severance payment equal to 12 months of base salary. In addition, the vesting of 50% of shares of common stock underlying his unvested options accelerated, and the options will remain exercisable for the remainder of their terms. The cash severance payment was required to be paid in substantially equal installments over a period of six months beginning on the Company’s first payroll date that occurred following the 30th day after the effective date of termination of Mr. Guse’s employment, subject to certain conditions. The Company was not required, however, to pay any severance pay for any period following the termination date if Mr. Guse materially violated certain provisions of his employment agreement and the violation was not cured within 30 days following receipt of written notice from the Company containing a description of the violation and a demand for immediate cure. Subject to, and in accordance with, the terms of his employment agreement, upon Mr. Guse’s termination without cause, he became entitled to receive the severance benefits payable of $554,000.

Greg Weaver

In connection with Mr. Weaver’s voluntary resignation, he was not entitled to any severance benefits.

Other Benefits

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The Company offers health, dental, disability and life insurance to its full-time employees. A 401(k) Plan with matching up to 4% of salary is also offered to its full and part-time employees.

Prohibition on Hedging and Pledging

Under our Insider Trading Policy and procedures pursuant to which, among other things, our directors, officers, and employees, and their respective family members and controlled entities, are prohibited from (i) engaging in short sales, (ii) unless approved by the Audit Committee, buying or selling puts, calls, other derivative securities of the Company or any derivative securities that provide the economic equivalent of ownership of any of the Company’s securities or an opportunity, direct or indirect, to profit from any change in the value of the Company’s securities, (iii) using the Company’s securities as collateral in a margin account, and (iv) unless approved by the Audit Committee, pledging Company securities as collateral for a loan (or modifying an existing pledge).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Based on information available to us and filings with the SEC, the following table sets forth certain information regarding the beneficial ownership (as defined by Rule 13d-3 under the Exchange Act) of our outstanding Common Stock for (i) each of our directors and nominees, (ii) each of our “named executive officers,” as defined in “Executive Compensation” above, (iii) all of our current directors and executive officers as a group, and (iv) persons known to us to beneficially hold more than 5% of our outstanding Common Stock. The following information is presented as of March 15, 2024 or such other date as may be reflected below.

Beneficial ownership and percentage ownership are determined in accordance with the rules of the SEC and include voting or investment power with respect to shares of stock. This information does not necessarily indicate beneficial ownership for any other purpose. Under these rules, shares of Common Stock issuable pursuant to stock options or warrants that are exercisable within 60 days of March 15, 2024, as well as convertible preferred stock, are deemed outstanding for the purpose of computing the percentage ownership of the person holding the options, warrants or convertible preferred stock, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. To our knowledge and subject to applicable community property rules, and except as otherwise indicated below, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned. Unless otherwise noted, the address of each person listed on the table is c/o Atossa Therapeutics, Inc., 107 Spring Street, Seattle, Washington 98104.

Shares Beneficially Owned

Name of Beneficial Owner Number Percent of Class (1)

H. Lawrence Remmel, Esq.(7) 257 *

Tessa Cigler, M.D., M.P.H. — —

Gregory L. Weaver(10) 56 *

Other 5% Beneficial Owners:

CVI Investments, Inc. and Heights Capital Management, Inc.(12) 7,762,500 6.2 %

* Less than one percent.

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(10) Consists of 56 shares of Common Stock held by Mr. Weaver.

Equity Compensation Plan Information

The following table sets forth certain information, as of December 31, 2023, regarding the Company’s Incentive Plans, as well as other stock options and warrants previously issued by the Company as compensation for services.

Equity compensation plans not approved by security holders — — —

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Parties

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Other than compensation arrangements described above under the captions “Director Compensation” and “Executive Compensation,” since January 1, 2022, we have not been a party to any related party transactions within the meaning of SEC rules.

Related-Party Transaction Review and Approval

Related party transactions that the Company is required to disclose publicly under the federal securities laws require prior approval by the Company’s independent directors without the participation of any director who may have a direct or indirect interest in the transaction in question. Related parties include directors, nominees for director, principal stockholders (that is, any person who beneficially owns five percent or more of any class of the Company’s voting securities), executive officers and members of their immediate families. For these purposes, a “transaction” includes all financial transactions, arrangements or relationships, ranging from extending credit to the provision of goods and services for value. The Company’s policies and procedures regarding related party transactions are not part of a formal written policy, but rather, represent a course of practice determined to be appropriate by the Board of Directors of the Company.

Director Independence

We believe that the Company benefits from having a strong and independent Board. For a director to be considered independent, the Board must determine, in accordance with the Nasdaq listing rules, that the director does not have any direct or indirect material relationship with the Company that would affect his or her exercise of independent judgment. On an annual basis, the Board reviews the independence of all directors under guidelines established by Nasdaq and in light of each director’s background, employment and affiliations with the Company and members of management, as well as significant holdings of Company securities. This review considers all known relevant facts and circumstances in making an independence determination. Based on this review, the Board has made an affirmative determination that all directors, other than Drs. Quay and Chen, are “independent directors” as defined by the Nasdaq listing rules. The Board determined that Dr. Quay is not independent because of his status as the Company’s President and Chief Executive Officer and that Dr. Chen is not independent because of her marriage to Dr. Quay. Former director, Greg Weaver, was not independent during the period he served on the Board because he also served as our Executive Vice President and Chief Financial Officer at that time. The independent board members meet regularly in executive sessions without the non-independent members and without management.

Our Board also determined that each of the directors currently serving on the Audit Committee and the Compensation Committee satisfy the heightened independence standards for audit committees and compensation committees, as applicable, as established by the SEC and Nasdaq listing rules.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Ernst & Young LLP (“EY”) has served as our independent auditor for the year ended December 31, 2023 (on or after May 17, 2023 (the “Effective Date”)). BDO USA, LLP (“BDO”) served as our independent auditor prior to the Effective Date.

Fees for Independent Registered Public Accounting Firm

The following is a summary of the audit fees billed and expected to be billed to the Company by EY and BDO for the fiscal year ended December 31, 2023 and 2022, respectively, and the fees billed to the Company by EY and BDO for all other services rendered during the fiscal year ended December 31, 2023 and 2022, respectively. All services associated with such fees were pre-approved by our Audit Committee in accordance with the “Pre-Approval Policies and Procedures” described below.

Audit Fees:

Tax Fees — —

All Other Fees — —

Pre-Approval Policies and Procedures

The Audit Committee reviews and pre-approves all audit and non-audit services performed by the Company's independent registered public accounting firm, as well as the fees charged for such services, in order to assure that these services do not impair the auditor’s independence. This generally involves approval of the performance of specific services subject to a cost limit for all such services. This general approval is reviewed, and if necessary modified, at least annually. Management must obtain the specific prior

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approval of the committee for each engagement of our auditor to perform other audit-related or other non-audit services. The committee does not delegate its responsibility to approve services performed by our auditor to any member of management. The committee has delegated authority to the committee chair to pre-approve certain audit or non-audit services to be provided to us by our auditor. Any approval of services by the committee chair pursuant to this delegated authority is reported to the committee at its next regularly scheduled meeting.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

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

1. Financial Statements

Report of Independent Registered Public Accounting Firm (EY; PCAOB ID #42) 61

Consolidated Balance Sheets 64

Consolidated Statements of Operations 65

Consolidated Statements of Stockholders' Equity 66

Consolidated Statements of Cash Flows 67

Notes to Consolidated Financial Statements 68

2. Financial Statement Schedules

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.

3. Exhibits

See the Exhibit Index on page 80 of this report.

ITEM 16. FORM 10-K SUMMARY

None.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Atossa Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Atossa Therapeutics, Inc. (the Company) as of December 31, 2023, the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023 in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the 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 financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Valuation of Investment in Equity Securities

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2023.

Seattle, Washington

April 1, 2024

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

Atossa Therapeutics, Inc.

Seattle, Washington

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Atossa Therapeutics, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. 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.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. 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 audit 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 audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ BDO USA, LLP

We served as the Company's auditor from 2014 to 2023.

Seattle, Washington

March 22, 2023

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ATOSSA THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

As of December 31,

Assets

Current assets

Prepaid expenses and other current assets 2,162 1,207

Research and development tax rebate receivable — 743

Investment in equity securities 1,710 4,700

Liabilities and stockholders' equity

Current liabilities

Other current liabilities 1,803 19

Commitments and contingencies (Note 13)

Stockholders' equity

Total liabilities and stockholders' equity $ 96,252 $ 123,532

The accompanying notes are an integral part of these Consolidated Financial Statements.

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ATOSSA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

For the Year Ended December 31,

Operating expenses

Impairment charge on investment in equity securities (2,990 ) —

Other expense, net (70 ) (146 )

Income tax benefit — —

Net loss per share of common stock - basic and diluted $ (0.24 ) $ (0.21 )

The accompanying notes are an integral part of these Consolidated Financial Statements.

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ATOSSA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(amounts in thousands, except share data)

Convertible Preferred Stock Common Stock Treasury Stock

Additional Total

Stock-based compensation — — — — 6,788 — — 6,788

Stock-based compensation — — — — 4,621 — — 4,621

The accompanying notes are an integral part of these Consolidated Financial Statements.

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ATOSSA THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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

Impairment charge on investment in equity securities 2,990 —

Depreciation 23 8

Disposal of assets — 3

Changes in operating assets and liabilities:

Research and development tax rebate receivable 743 329

Prepaid expenses and other current assets 261 180

Accrued expenses (86 ) 855

Other current liabilities 1,784 (2 )

Net cash used in operating activities (20,941 ) (20,760 )

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of investment in equity securities — (4,700 )

Purchase of property and equipment (14 ) (27 )

Net cash used in investing activities (14 ) (4,727 )

CASH FLOWS FROM FINANCING ACTIVITIES

Common stock repurchased (1,475 ) —

Net cash used in financing activities (1,475 ) —

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (22,430 ) (25,487 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING BALANCE 111,000 136,487

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE $ 88,570 $ 111,000

RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

Total cash, cash equivalents and restricted cash $ 88,570 $ 111,000

The accompanying notes are an integral part of these Consolidated Financial Statements.

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ATOSSA THERAPEUTICS, INC.

NOTES TO CONSLIDATED FINANCIAL STATEMENTS

NOTE 1: NATURE OF OPERATIONS

Atossa Therapeutics, Inc. (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 focused on developing proprietary innovative medicines in areas of significant unmet medical need in oncology, with a focus on breast cancer and other breast conditions.

NOTE 2: LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred net losses and negative operating cash flows since inception. For the year ended December 31, 2023, the Company recorded a net loss of $30.1 million and used $20.9 million of cash in operating activities. As of December 31, 2023, the Company had $88.5 million in unrestricted cash and cash equivalents and working capital of $87.0 million. 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 cash and cash equivalents will be sufficient to finance the Company’s operations for at least one year from the date these Consolidated Financial Statements are issued. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of public or private equity offerings, debt financings or other sources, including potential corporate collaborations, licenses and other similar arrangements. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future. If the Company is unable to secure additional funding, it may be forced to curtail or suspend its business plans.

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These 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 transactions and balances have been eliminated in consolidation.

Reclassification

Certain reclassifications have been made to prior period financial information 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. Significant estimates and assumptions reflected in these financial statements include the valuation of the investment in non-marketable equity securities, stock-based compensation expense, and prepaid or accrued clinical trial balances at the end of any reporting period. Actual results could differ materially from the Company’s estimates.

Segments

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

Cashand Cash Equivalents

Cash and cash equivalents include unrestricted cash and all highly liquid instruments with original maturities of three months or less at the date of purchase. Cash equivalents consist primarily of amounts invested in money market accounts.

Restricted Cash

The Company’s restricted cash balance as of December 31, 2023 and 2022, consisted entirely of cash pledged as security for the Company’s issued commercial credit cards.

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Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of deposits of cash and cash equivalents, including those deposited in money market deposit accounts. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any material losses in such accounts and believes it is not exposed to significant risk. The Company has invested its excess cash primarily in money market funds.

Prepaid Materials

We capitalize the purchase of certain raw materials, active pharmaceutical ingredient and related supplies for use in the manufacturing of drug products for use in our preclinical and clinical development programs, as we have determined that these materials have alternative future use. We can use these raw materials and related supplies in multiple clinical drug products, and therefore have future use independent of the development status of any particular drug program until it is utilized in the manufacturing process. We expense the cost of materials when used. We periodically review these capitalized materials for continued alternative future use and write down the asset to its net realizable value in the period in which an impairment is identified. Prepaid materials not expected to be used within 12 months of the balance sheet date are presented in Other assets on the Consolidated Balance Sheets.

Research and Development Tax Rebate Receivable

The Company uses the grant accounting model by analogy to International Accounting Standards (IAS) 20 Accounting for Government Grants and Disclosure of Government Assistance to account for the cash rebates received from the Australian government. The Company records the research and development rebate credit in the period when it incurs the associated research and development costs as a reduction to the research and development expenses in the Consolidated Statements of Operations.

Variable Interest Entities

The Company reviews agreements it enters into with third-party entities, pursuant to which the Company may have a variable interest in the entity, in order to determine if the entity is a variable interest entity (VIE). If the entity is a VIE, the Company assesses whether or not it is the primary beneficiary of that entity. In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (i) the power to direct the economically significant activities of the entity and (ii) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. If the Company determines it is the primary beneficiary of a VIE, it consolidates that VIE into the Company’s consolidated financial statements. The Company’s determination about whether it should consolidate such VIEs is made continuously as changes to existing relationships or future transactions may result in a consolidation or deconsolidation event. The Company currently does not consolidate any VIEs.

Investments in Equity Securities

The Company has one investment in non-marketable equity securities. This investment does not have a readily determinable fair value, so the Company has elected to measure the investment at cost less any impairment, adjusted to fair value if there are observable price changes in orderly transactions for an identical or similar investment of the same issuer, in accordance with Accounting Standards Codification (ASC) 321, Investments – Equity Securities. At each reporting period, the Company performs an assessment to determine if it still qualifies for this measurement alternative.

At each reporting period, the Company makes a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. If a qualitative assessment indicates the investment is impaired, the Company estimates the investment's fair value. If the fair value is less than the investment's carrying value, an impairment charge is recorded in the Consolidated Statements of Operations equal to the difference between the carrying value and fair value and a new basis in the investment is established. Refer to Note 4.

Other Assets

Other assets consist of property and equipment, prepaid materials and clinical deposits.

Fair Value Measurements

The Company has certain financial assets and liabilities recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

The fair value hierarchy is broken down into the three input levels summarized below:

•

Level 1: Quoted market prices in active markets for identical assets or liabilities;

•

Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data; and

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•

Level 3: Unobservable inputs that cannot be corroborated by market data that reflects the reporting entity's own assumptions.

The carrying amounts reflected in the accompanying Consolidated Balance Sheets for cash and cash equivalents, restricted cash, research and development tax rebate receivable, and accounts payable approximate their fair values due to their short-term nature. Refer to Note 9.

Researchand Development

Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expenses for the Company's drugs under development, expenses associated with preclinical studies, clinical trials and associated salaries, bonuses, stock-based compensation and benefits. The Company has entered into various research and development contracts with research institutions, clinical research organizations (CROs), clinical manufacturing organizations (CMOs) and other third parties. Payments for these activities are based on the terms of the individual agreements, which may differ from the timing of costs incurred. The Company records accruals for estimated costs incurred for ongoing research and development activities as reflected in the consolidated balance sheets as accrued expenses. Payments made in advance of incurring costs are reflected in the Consolidated Balance Sheets as prepaid expenses. When evaluating the adequacy of the accrued expenses and prepaid expenses, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs.

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 his total hours spent on R&D activities. The Company's CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activities and also acts as the Company's chief medical officer.

Stock-based Compensation

The Company measures and recognizes compensation expense for all stock-based awards made to employees, officers, non-employee directors, and other key persons providing services to the Company, currently limited to stock options. Stock-based compensation is measured using the estimated grant date fair value and is recognized as an expense over the requisite service period, generally the vesting period. The Company has made a policy election to recognize forfeitures when they occur.

The fair value of each stock 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 a risk-free interest rate. The Company’s expected common stock price volatility assumption is based upon the historical volatility of its 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 10 years with the vesting term, typically one to four years, as the Company does not have sufficient 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 assumption is based upon prevailing short-term interest rates over the expected life of the options as of the grant date.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company records any interest or penalties related to income taxes in income tax benefit in the Consolidated Statements of Operations.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This standard requires disclosure of

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significant segment expenses and other segment items by reportable segment. This ASU becomes effective for annual periods beginning in 2024 and interim periods in 2025. The Company is assessing the potential impact of this ASU.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740):Improvements to Income Tax Disclosures. This standard enhances disclosures related to income taxes, including the rate reconciliation and information on income taxes paid. This ASU becomes effective on January 1, 2025. The Company is currently assessing the potential impact of this ASU.

The Company does not expect adoption of any other recently issued accounting pronouncements to have a material impact on its financial statements.

NOTE 4: INVESTMENT IN EQUITY SECURITIES

On December 23, 2022, the Company completed its investment in Dynamic Cell Therapies, Inc. (DCT), 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 Company’s determined that DCT is a variable interest entity. The Company does not consolidate DCT because it does not have the power to direct economically significant activities. The Company has no obligation to provide any future funding to DCT and its maximum exposure to loss is its investment value. In total, the Company paid $4.7 million during the year ended December 31, 2022 to DCT in exchange for Series Seed Preferred Shares representing approximately 19% of the post-investment outstanding shares of DCT as of December 31, 2022.

During 2023, the Company considered the additional adverse changes in the general market condition of the industry in which DCT operates and continued 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 quantitative fair value measurement in the second quarter of 2023.

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;

•

Then-current fundraising transactions;

•

The-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.

The impairment of the Company's investment in equity securities required the estimation of fair value using unobservable inputs (a Level 3 fair value measurement). The Company used the dynamic options approach, which requires assumptions regarding the expected average volatility of comparable companies, the expected term of the investment, and the risk-free interest rate over the expected term of the investment. The expected stock price volatility assumption is based upon the average historic volatility of comparable public clinical stage immunotherapy or CAR-T companies. The expected term of the Company's investment is 3.5 years and the risk-free interest rate used is based upon prevailing short-term interest rates over the expected term of the investment. The dynamic options approach was weighted at a 50% outcome probability. An adjusted book value approach was also considered and also weighted at a 50% probability due to DCT's limited cash on hand, status of current fundraising efforts and the estimated timing of a deemed liquidation event occurring. The Company recorded an impairment charge of $3.0 million for the year ended December 31, 2023.

No impairment was recorded during the year ended December 31, 2022 as a result of the Company's qualitative impairment analysis.

NOTE 5: PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):

As of December 31, As of December 31,

Prepaid clinical trial deposits $ 805 $ 611

Prepaid professional services 501 130

Total prepaid expenses and other current assets $ 2,162 $ 1,207

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NOTE 6: RESEARCH AND DEVELOPMENT TAX REBATE RECEIVABLE

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 R&D cash rebates on qualified R&D activities incurred in the country. During the years ended December 31, 2023 and 2022, the Company collected R&D cash rebates of $0.7 million and $1.0 million, respectively. The Company did not recognize any rebates during the year ended December 31, 2023 and recognized rebates of $0.7 million for the year ended December 31, 2022.

The Australian R&D tax incentive program is a self-assessment program, and as such, the Australian Taxation Office (ATO) has the right to review the Company’s program and related expenditures for a period of four years following the tax return filing date. If a review were to occur, a qualified program and related expenditures could be disqualified by the ATO with interest and penalties. Based on the Company's evaluation of the ATO's taxpayer alert in December 2023, the Company believes that it is no longer reasonably assured that the full tax position would be sustained under audit. Accordingly, a change in estimate was recorded during the three-month period ended December 31, 2023 that represents the Company's estimate of the amount plus penalties that no longer meets the reasonably assured threshold. The Company accrued a liability of $1.8 million, which is included in other current liabilities in the Consolidated Balance Sheet for the year ended December 31, 2023. The change in estimate also increased the Company's R&D expenses by $1.4 million and G&A expenses by $0.4 million, for the year ended December 31, 2023.

NOTE 7: ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

As of December 31, As of December 31,

Accrued clinical trial costs $ 608 $ 1,038

Accrued professional services and other 365 21

Total accrued expenses $ 973 $ 1,059

NOTE 8: PAYROLL LIABILITIES

Payroll liabilities consisted of the following (in thousands):

As of December 31, As of December 31,

Accrued payroll and benefits 284 241

Total payroll liabilities $ 1,654 $ 1,525

NOTE 9: FAIR VALUE OF FINANCIAL INSTRUMENTS

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 (in thousands):

December 31, 2023 Estimated Fair Value Level 1 Level 2 Level 3

Assets:

December 31, 2022 Estimated Fair Value Level 1 Level 2 Level 3

Assets:

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NOTE 10: STOCKHOLDERS’ EQUITY

Common Stock

The Company is authorized to issue a total of 185,000,000 shares of stock, consisting of 175,000,000 shares of common stock, par value $0.18 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

On May 19, 2014, the Company adopted a stockholder rights agreement, pursuant to which all stockholders of record on May 26, 2014 received a non-taxable distribution of one preferred stock purchase right for each share of the Company’s common stock held by such stockholder. Each right is attached to and trades with the associated share of common stock. The rights will become exercisable only if one of the following occurs: (1) a person becomes an “Acquiring Person” by acquiring beneficial ownership of 15% or more of the Company’s common stock (or, in the case of a person who beneficially owned 15% or more of the Company’s common stock on the date the stockholder rights agreement was executed, by acquiring beneficial ownership of additional shares representing 2.0% of the Company’s common stock then outstanding (excluding compensatory arrangements)), or (2) a person commences a tender offer that, if consummated, would result in such person becoming an Acquiring Person. If a person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person and certain related parties, to purchase a number of shares of the Company’s common stock with a market value that equals twice the exercise price of the right. The initial exercise price of each right is $15.00, so each holder (other than the Acquiring Person and certain related parties) exercising a right would be entitled to receive $30.00 worth of the Company’s common stock. If the Company is acquired in a merger or similar business combination transaction at any time after a person has become an Acquiring Person, each holder of a right (other than the Acquiring Person and certain related parties) will be entitled to purchase a similar amount of stock of the acquiring entity.

Share Repurchases

On June 27, 2023, the Board of Directors (the Board) authorized a program to repurchase common stock, par value $0.18 per share, up to an aggregate market value of $10.0 million. During the year ended December 31, 2023, 1,320,046 shares were repurchased pursuant to the program for a total cost of $1.5 million.The share repurchase program was originally set to expire on December 31, 2023, however, on December 18, 2023 the Board authorized an extension through December 31, 2024. The Board may suspend, modify, or terminate the share repurchase program at any time.

Series Convertible Preferred Stock

The Company has designated 750,000 shares of Series A junior participating preferred stock, par value $0.001 per share, 4,000 shares of Series A convertible preferred stock, par value $0.001 per share, 25,000 shares of Series B convertible preferred stock, par value $0.001 per share, and 20,000 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, Series A convertible preferred stock, or Series C convertible preferred stock, were outstanding as of December 31, 2023 or 2022.

Series B Convertible Preferred Stock

Conversion. Each share of Series B convertible preferred stock is convertible at the Company's option at any time, or at the option of the holder atany time, into the number of shares of the Company's 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 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.

During the years ended December 31, 2023 and 2022, there were no conversions of Series B convertible preferred stock.

Fundamental Transactions. In the event the Company effects certain mergers, consolidations, sales of substantially all of its assets, tender orexchange 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 its common stock, or any person or group becomes the beneficial owner of 50% of the aggregate ordinary voting power represented by its 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.

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Dividends. 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. The Company's preferred stock contractually entitles the holders of such securities to participate in dividends but do not contractually require the holders of such securities to participate in losses of the Company.

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 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. 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 warrants were issued to institutional and accredited investors as a part of the financing transactions, which closed on December 11, 2020, December 21, 2020, December 28, 2020, January 8, 2021, and March 23, 2021. The terms and conditions of the warrants are as follows:

Exercisability. Each warrant is exercisable at any time and will expire between 4 and 4.5 years from the date of issuance. The warrants areexercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice and payment in full for the number of shares of the Company's common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below. The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split or, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of the Company's 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 the Company's common stock purchasable upon such exercise.

Exercise Price. 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. 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 the Company's 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 the Company's 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 andsigned 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. The Company does 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 the Company's stockholders. The Company's warrants contractually entitles the holders of such securities to participate in dividends but do not contractually require the holders of such securities to participate in losses of the Company.

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Warrants Outstanding

As of December 31, 2023, the following warrants to purchase shares of common stock were outstanding:

OutstandingWarrants toPurchase Shares Exercise Price Per Warrant Expiration Date

Warrant Activity

There were no warrant exercises during the years ended December 31, 2023 or 2022. On May 30, 2022, all 762,000 of the warrants issued in May 2018 expired, unexercised, with an exercise price of $4.05 per share.

NOTE 11: NET LOSS PER SHARE

Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Diluted net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock that would have been outstanding during the period assuming the issuance of shares of common stock for all potentially dilutive shares of common stock outstanding. Potentially dilutive shares of common stock consist of future exercises of outstanding stock options, convertible preferred stock and common stock warrants. Because the inclusion of potential shares of common stock would be anti-dilutive for all periods presented, they have been excluded from the calculation.

The following table sets forth the weighted average number of common shares excluded from the calculation of diluted net loss per share, because including them would be anti-dilutive:

Year Ended December 31,

NOTE 12: INCOME TAXES

A reconciliation of the income tax benefit calculated at the federal statutory rate to total income tax provision is as follows (in thousands):

Year Ended December 31,

Expected federal income tax benefit $ (6,320 ) $ (5,662 )

Disallowed R&D expenses 9 351

Non-taxable R&D rebate (7 ) (156 )

Return to provision 47 862

Stock-based compensation 682 213

Foreign rate differential (453 ) (270 )

Effect of change in valuation allowance 5,306 4,421

Income tax benefit $ — $ —

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The following table summarizes the significant components of the Company's deferred tax assets and liabilities (in thousands):

As of December 31,

Deferred tax assets

Accrued vacation 50 47

Rebate reserve 303 —

Investment in equity securities 628 —

Other 6 —

Net deferred tax assets 94 1

Deferred tax liabilities

Section 481(a) adjustment - bonus compensation (94 ) —

Fixed assets — (1 )

Net deferred tax assets $ — $ —

As of December 31, 2023 and 2022, a valuation allowance was established against the Company's net deferred tax assets due to the uncertainty regarding the realization of such assets and evidenced by the cumulative losses from operations through December 31, 2023 and 2022. The total valuation allowance increased by $5.4 million for the year ended December 31, 2023.

The Company has incurred net operating losses since inception. At December 31, 2023, the Company had domestic federal net operating loss carryforwards of $106.7 million and foreign net operating loss carryforwards of $1.6 million. 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 future utilization of the Federal net operating loss carryforwards to offset future taxable income, may be subject to an annual limitation as a result of ownership changes that may have occurred previously or may occur in the future. The Tax Reform Act of 1986 (the Act) limits a Company's ability to utilize certain net operating loss carry forwards in the event of a cumulative change in ownership in excess of 50% (by value) defined in the act. The Company has not completed a study to assess whether an ownership change, as defined by the Act, had occurred from the Company's formation through December 31, 2023.

In previous years, the Company completed public offerings, which it believes triggered ownership changes under Section 382 of the Act. The Company believes that as of December 31, 2023, the gross net operating loss carryforward is limited to $60.9 million, which are available to reduce future taxable income.

The Company files income tax returns in the U.S. and Australia. The Company has not been audited for any open taxation years. The Company is subject to federal tax examinations for 2017 and beyond for the U.S. operations and 2019 and beyond for Australia operations.

The Company has no unrecognized tax positions as of December 31, 2023 or 2022 and does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties related to unrecognized tax positions for the years ended December 31, 2023 or 2022.

NOTE 13: COMMITMENTS AND CONTINGENCIES

Litigation and Contingencies

On August 18, 2023, Intas Pharmaceuticals LTD. filed a Petition for Post Grant Review (PGR) with the U.S. Patent and Trademark Office (the PGR Petition), seeking to invalidate one of the Company's issued patents (U.S. Patent No. 11,572,334) titled “Methods for Making and Using Endoxifen” (the Patent) on the grounds of anticipation and obviousness. The Company is actively contesting the PGR Petition and believes that the Patent was properly granted and is valid and enforceable. However, there can be no assurance that the Company will prevail in contesting the PGR Petition.

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The Company is subject to other legal proceedings and claims that arise in the ordinary course of its business. The Company believes that these matters do not have a material effect, individually or in the aggregate, on its financial position, results of operations or cash flows.

Contractual Obligations

Contractual obligations represent the Company's future cash commitments and liabilities under agreements with third party clinical trial service providers. Apart from contracts with a third party clinical trial service provider, such agreements are cancellable upon written notice by the Company. The non-cancellable contracts expire upon completion of the clinical trial and release of the final report, or the contracts may be terminated by the clinical trial service provider, by the FDA or another governmental agency. As of December 31, 2023, the Company's estimated non-cancellable commitment was $6.1 million.

NOTE 14: STOCK BASED COMPENSATION

On May 15, 2020, the stockholders of the Company approved the 2020 Stock Incentive Plan (the 2020 Plan) to provide for the grants 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 May 15, 2030. An aggregate of 3,000,000 shares of common stock was initially reserved for issuance in connection with awards granted under the 2020 Plan. On May 14, 2021, the stockholders approved an additional 15,000,000 shares available for issuance under the 2020 Plan. As of December 31, 2023, 4,646,686 shares were available for future grants under the 2020 Plan.

The Company granted 6,828,600 and 4,079,667 options to purchase shares of common stock to employees and directors during the years ended December 31, 2023 and 2022, respectively. The weighted average grant date fair value of options granted during 2023 and 2022 was $0.69 and $0.96, respectively. No options were exercised during the years ended December 31, 2023 or 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,

Dividend yield — —

The Company recognized stock-based compensation expense in the Consolidated Statements of Operations as follows (in thousands):

Year Ended December 31,

General and administrative $ 3,038 $ 4,395

Total stock-based compensation expense $ 4,621 $ 6,788

The following table shows a summary of all stock option activity for the year ended December 31, 2023:

Exercised — —

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As of December 31, 2023, there were 2,938,003 unvested options outstanding, and the related unrecognized total compensation cost associated with these options was $1.7 million. This expense is expected to be recognized over a weighted-average period of 1.21 years.

NOTE 15: DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan to which employees of the Company may defer contributions for income tax purposes. Participants are eligible to receive employer matching contributions up to 6% of deferrals. Employees may also be eligible for a discretionary match over 6%. Defined contribution plan employer matching contributions for the years ended December 31, 2023 and 2022 were $0.3 million and $0.2 million, respectively.