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, as well as other rare diseases.

NOTE 2: GOING CONCERN

The Company's Condensed Consolidated Financial Statements are prepared under the going concern basis of accounting, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred net losses and negative operating cash flows since inception. For the three months ended March 31, 2026, the Company recorded a net loss of $9.6 million and used $9.6 million of cash in operating activities. As of March 31, 2026, the Company had $31.7 million in unrestricted cash and cash equivalents and working capital of $29.2 million. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The accompanying Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern.

In order to alleviate the conditions that raise substantial doubt, the Company will need, among other things, additional capital resources. Management plans to obtain such resources for the Company include obtaining capital from the sale of its equity securities as well as short-term borrowings from banks, stockholders or other related parties if needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraphs and eventually to secure other sources of financing and attain profitable operations.

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to the rules of the Securities and Exchange Commission (the SEC) and in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by GAAP for complete financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2025. The year-end Condensed Consolidated Balance Sheet presented in this report was derived from audited consolidated financial statements but does not include all annual disclosures required by GAAP.

In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included and have been prepared on the same basis as the annual consolidated financial statements. Operating results for the three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.

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 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.

Reverse Stock Split

On February 2, 2026, the Company effected a 1-for-15 reverse stock split of its issued and outstanding common stock (the Reverse Stock Split). As a result of the Reverse Stock Split, each 15 sharesof common stock issued and outstanding immediately prior to February 2, 2026 was automatically converted intoone share of common stock. The Reverse Stock Split affected all common stockholders uniformly and did not alter any stockholders' percentage interest in the Company's equity, except to the extent that the Reverse Stock Split would result in a stockholder owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive a fractional share instead were entitled to receive cash in lieu of such fractional share.

The Reverse Stock Split did not change the par value of the common stock or the authorized shares of common stock. The shares of common stock retain a par value of $0.18 per share. Accordingly, an amount equal to the par value of the decreased shares resulting from the reverse stock split was reclassified from “Common stock” to “Additional paid-in capital”.

All common stock and per-share amounts in this Form 10-Q have been retroactively restated to reflect the effect of the Reverse Stock Split.

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 March 31, 2026 and December 31, 2025, 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.

Clinical Trial and Preclinical Study Accruals

The Company makes estimates of its accrued expenses for clinical trial and preclinical study activities as of each balance sheet date in its financial statements based on the facts and circumstances known to the Company at that time. These accruals are based upon estimates of costs incurred and fees that may be associated with services provided by clinical trial investigational sites and Contract Research Organizations (CROs), and for other clinical trial-related activities. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and progression through the various stages of the Company's clinical trials. In accruing for these services, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If possible, the Company obtains information regarding unbilled services directly from these service providers. However, the Company may be required to estimate these services based on other information available to it. If the Company underestimates or overestimates the activities or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, the Company's estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in the Company's accruals.

Prepaid Materials

The Company capitalizes the purchase of certain raw materials, active pharmaceutical ingredients and related supplies for use in the manufacturing of drug products for use in its preclinical and clinical development programs, as it has determined that these materials have alternative future use. The Company can use these raw materials and related supplies in multiple clinical drug products, and therefore has future use independent of the development status of any particular drug program until it is utilized in the manufacturing process. The Company expenses the cost of materials when used. The Company periodically reviews these capitalized materials for continued alternative future use and writes 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 Condensed Consolidated Balance Sheets.

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 Condensed Consolidated Balance Sheets for cash and cash equivalents, restricted cash, and accounts payable approximate their fair values due to their short-term nature. Refer to Note 8 to these Condensed Consolidated Financial Statements.

Research and Development

Research and development (R&D) costs are expensed as incurred and consist of costs associated with research activities. R&D expenses include, for example, manufacturing expenses for the Company's drugs under development, expenses associated with preclinical studies and clinical trials, as well as R&D employee 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 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 comprised of stock options and restricted stock units (RSUs). For both stock options and RSUs, 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 limited exercise history and 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. The Company uses a dividend yield assumption ofzero based upon the fact that it 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. RSUs are valued using the closing market price of the Company’s stock on the date of grant multiplied by the number of RSUs granted.

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 Condensed Consolidated Statements of Operations.

Recently Issued Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (the FASB) issued ASU No. 2024-03, Disaggregation of Income Statement Expenses (Topic 220-40). This standard requires business entities to disclose in a tabular format, on an annual and interim basis, purchases of inventory, employee compensation, depreciation, intangible asset amortization and depletion for each income statement line item that contains those expenses. The guidance is effective for public business entities in annual reporting periods beginning after December 15, 2026, and in interim periods within annual reporting periods beginning after December 15, 2027. Entities may apply the guidance prospectively or retrospectively. The Company is currently assessing the potential impact of this ASU.

NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

NOTE 5: ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

NOTE 6: PAYROLL LIABILITIES

Payroll liabilities consisted of the following (in thousands):

NOTE 7: RESEARCH AND DEVELOPMENT TAX REBATE LIABILITY

In 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 conducting certain of the Company's clinical trials. Australia offers R&D cash rebates on qualified R&D activities incurred in the country. 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 on the cash rebates previously received. Based on the Company's evaluation of the ATO's taxpayer alert in December 2023, the Company believes that it is not reasonably assured that the full tax position would be sustained under audit. Accordingly, as of both March 31, 2026 and December 31, 2025, a liability of $1.1 million was included in Other current liabilities in the Condensed Consolidated Balance Sheets.

NOTE 8: 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, that are measured at fair value on a recurring basis (in thousands):

NOTE 9: STOCKHOLDERS’ EQUITY

Common Stock

On June 27, 2024, the Company's stockholders approved an amendment of the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock, par value $0.18 per share, from 175,000,000 to 350,000,000.

Preferred Stock

The Company is authorized to issue a total of 10,000,000 shares of preferred stock, par value $0.001 per share. 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 March 31, 2026 and December 31, 2025.

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 $52.80 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 the Company's common stock outstanding immediately after giving effect to its conversion.

Rights. Holders of the Series B convertible preferred stock have certain rights should certain future events occur, such as the right to receive shares of an acquiring corporation or other consideration that holders of shares of common stock are entitled to receive upon certain mergers, consolidations or sales of substantially all of the Company’s assets; the right to receive dividends in the same form as dividends paid on shares of common stock; and redemption rights upon the Company’s liquidation, dissolution or winding up, among others. Holders of Series B convertible preferred stock have no voting rights, and the Company is not obligated to redeem or repurchase any of the Series B convertible preferred stock.

During the three months ended March 31, 2026 and 2025 there were no conversions of Series B convertible preferred stock.

Warrants Outstanding

As of March 31, 2026, no warrants were outstanding. As of March 31, 2025, the following warrants to purchase shares of the Company’s common stock were outstanding:

Warrants Activity

There wereno warrant exercises during the three months ended March 31, 2026 and 2025.

NOTE 10: 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 outstanding stock options and RSUs, 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 shares of common stock excluded from the calculation of diluted net loss per share, because including them would be anti-dilutive:

NOTE 11: INCOME TAXES

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate. Therefore, no income tax provision was recorded for the three months ended March 31, 2026 and 2025.

NOTE 12: COMMITMENTS AND CONTINGENCIES

Litigation and Contingencies

On April 3, 2025, Intas Pharmaceuticals Ltd. (Intas) filed a Petition for Post Grant Review (PGR) with the U.S. Patent and Trademark Office’s (USPTO) Patent Trial and Appeal Board (PTAB) (the 391 PGR Petition) seeking to invalidate one of the Company’s issued patents (U.S. Patent No. 12,071,391) titled “Methods for Making and Using Endoxifen,” on the alleged grounds of anticipation, obviousness, lack of written description, and lack of enablement.

On April 3, 2025, Intas also filed a Petition for Inter Partes Review (IPR) with the USPTO’s PTAB (the 151 IPR Petition) seeking to invalidate one of the Company’s issued patents (U.S. Patent No. 11,261,151) titled “Methods for Making and Using Endoxifen” (together with U.S. Patent No. 12,071,391, the Patents) on the alleged grounds of anticipation and obviousness.

On November 3, 2025, the PTAB released a Decision Granting Institution of PGR for U.S. Patent No. 12,071,391 and a Decision Granting Institution of IPR for U.S. Patent No. 11,261,151. On January 26, 2026, the Company submitted responses to the 391 PGR Petition and the 151 IPR Petition. Final written decisions are expected for the PGR and IPR proceedings by November 3, 2026 in the event the proceedings are not terminated.

On April 13, 2026, the Company entered into a Settlement Agreement with Intasand Jina Pharmaceuticals, Inc. (the Settlement Agreement) which is intended to resolve the 391 PGR Petition and 151 IPR Petition. Pursuant to the Settlement Agreement, the parties have agreed to seek termination of the PTAB proceedings identified in the Settlement Agreement. In the event any such proceedings are not terminated in their entirety, the applicable parties have agreed not to participate further in such proceedings, or in any related appeals, in each case subject to and in accordance with the terms of the Settlement Agreement.

See Note 16 “Subsequent Events” to these Condensed Consolidated Financial Statements for more information on the Settlement Agreement.

From time to time, 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 one 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 March 31, 2026, the Company's estimated non-cancellable commitment for clinical trial enrollment costs was $5.3 million.

NOTE 13: 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 June 27, 2034. An aggregate of 2,000,000 shares of common stock is reserved for issuance in connection with awards granted under the 2020 Plan. As of March 31, 2026,706,663 shares were available for future grants under the 2020 Plan.

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

The following table shows a summary of all RSU activity for the three months ended March 31, 2026:

The Company granted 313,401 RSUs during the three months ended March 31, 2026 with a weighted average grant date fair value of $5.12. The outstanding RSUs vest ratably over three years at the anniversary of the grant date. As of March 31, 2026, the unrecognized stock-based compensation expense associated with unvested RSUs was $1.6 million. There wereno RSUs granted or outstanding prior to the first quarter of 2026.

The following table shows a summary of all stock option activity for the three months ended March 31, 2026:

As of March 31, 2026, there were 248,341 unvested stock options outstanding, and the unrecognized compensation cost associated with unvested stock options was $2.3 million. The associated stock-based compensation expense is expected to be recognized over a weighted-average period of 1.74 years.

NOTE 14: 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 three months ended March 31, 2026 and 2025 were $53 thousand and $75 thousand, respectively.

NOTE 15: 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 (the CODM) in making decisions regarding resource allocation and assessing performance. The measure of segment assets is reported on the balance sheets as total assets. To date, the Company's CODM has made such decisions and assessed performance at the Company-level as a single segment using information at the condensed consolidated financial statement level.

The CODM is Steven C. Quay, M.D., Ph D. Chairman, President and CEO. The CODM utilizes Net Loss from the Condensed Consolidated Statement of Operations for the measure of segment profit or loss.

NOTE 16: SUBSEQUENT EVENT

On April 13, 2026, the Company entered into a Settlement Agreement, which is intended to resolve the 391 PGR Petition and 151 IPR Petition. Pursuant to the Settlement Agreement, the parties have agreed to seek termination of the PTAB proceedings identified in the Settlement Agreement. In the event any such proceedings are not terminated in their entirety, the applicable parties have agreed not to participate further in such proceedings, or in any related appeals, in each case subject to and in accordance with the terms of the Settlement Agreement.

The Settlement Agreement also includes mutual covenants pursuant to which the parties have agreed not to challenge, directly or indirectly, specified Endoxifen-related patents and patent applications owned or controlled by the other parties, subject to limited exceptions set forth in the Settlement Agreement. In addition, the Settlement Agreement preserves the Company’s ability to continue developing and commercializing Z-endoxifen base in the Company’s principal areas of focus of oncology, endocrine dysfunction disorders and muscular dystrophy-related diseases. The Settlement Agreement also establishes agreed allocations between the parties with respect to certain other Endoxifen-related fields and formulations. Upon anticipated termination by the PTAB of the proceedings, the Company’s two issued patents titled, “Methods for Making and Using Endoxifen” (U.S. Patents Nos. 11,261,151 and 12,071,391), that are subject to such proceedings, are expected to remain issued and fully enforceable against other third parties.