ATOSSA THERAPEUTICS INC

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 asingle 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.

Cash and 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.

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:

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

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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.

Research and 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, typicallyone tofour years, as the Company does not have sufficient option exercise experience. The dividend yield assumption ofzero 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 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:

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Unaudited financial statements;

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Projected technological developments of DCT;

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Then-current fundraising transactions;

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The-current ability of DCT to raise additional financing when needed;

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

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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):

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 didnot 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):

NOTE 8: PAYROLL LIABILITIES

Payroll liabilities consisted of the following (in thousands):

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):

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 ofone 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 at any 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 or exchange offers, reclassifications, or share exchanges in which its common stock is effectively converted into or exchanged for other securities, cash or property, the Company consummates a business combination in which another person acquires 50% of the outstanding shares of 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.

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 are exercisable, 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 purchaseone 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 and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax liability that may arise as a result of the transfer.

Exchange Listing. 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.

Warrants Outstanding

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

Warrant Activity

There wereno 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:

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):

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

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 hasno 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 hasnot 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.

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:

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

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

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.