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 nine months ended September 30, 2026, the Company recorded a net loss of $23.7 million and used $24.7 million of cash in operating activities. As of September 30, 2026, the Company had $20.6 million in unrestricted cash and cash equivalents and working capital of $20.5 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 June 2026, the Company raised $4.0 million in net proceeds through a registered direct offering of shares of common stock and warrants. Refer to Note 9 to these Condensed Consolidated Financial Statements. Although the Company received this infusion of capital, management maintains that in order toalleviate 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 and nine months ended September 30, 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 shares of 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 September 30, 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 theperiod 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 Chief Executive Officer'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 Chief Executive Officer 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, a liability of $0.7 million and $1.1 million was included in Other current liabilities in the Condensed Consolidated Balance Sheets as of September 30, 2026 and December 31, 2025, respectively.

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.

June 2026 Registered Direct Offering

On June 10, 2026, the Company entered into a securities purchase agreement (the Purchase Agreement) with institutional investors, which provided for the issuance and sale by the Company, in a registered direct offering (the Offering), of (i)1,363,637 shares (the Shares) of the Company’s common stock and (ii) Series A warrants to purchase up to 1,363,637 shares of common stock and short-term Series B warrants to purchase up to 1,363,637 shares of common stock (such warrants, collectively, the Series Warrants). Each Share was offered and sold together with the Series Warrants at a combined offering price of $3.30 per Share and Series Warrants. The Series Warrants are subject to certain ownership limitations and have an exercise price of $4.40 per share, exercisable six months following the date of issuance. The Series A warrants will expire on the five and one-half year anniversary of the date of issuance. The short-term Series B warrants will expire on the two-year anniversary of the date of issuance. Additionally,40,909 warrants to purchase shares of common stock were issued to Rodman & Renshaw LLC (the Placement Agent) for services provided under the Offering. Upon cash exercise of the Series Warrants, the Company is required to issue to the Placement Agent, as compensation for services provided under the Offering, up to an additional 81,818 warrants. The Placement Agent’s warrants have an exercise price of $4.125 per share and will expire on the five-year anniversary of the date of issuance.

The Offering was made pursuant to a prospectus supplement dated June 10, 2026, and a base prospectus dated May 23, 2024, which is part of a registration statement on Form S-3 (File No. 333-279367) that was filed with the SEC on May 13, 2024, and became effective on May 23, 2024. The Series Warrants are not listed on any securities exchange.

The Offering closed on June 12, 2026. The Company received net proceeds from the Offering of $4.0 million after deducting placement agent fees and offering expenses of $0.5 million.

2026 At the Market Offering Facility

On February 20, 2026, the Company entered into an At the Market Offering Agreement, dated February 20, 2026 (the Sales Agreement), with the Placement Agent. Pursuant to the Sales Agreement, the Company may offer, from time to time, to sell, in an "at the market offering," shares of its common stock up to an aggregate offering price of $50.0 million. The Company sold a total of 4,300 shares of common stock and received net proceeds of $21 thousand during the nine months ended September 30, 2026.

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 September 30, 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 and nine months ended September 30, 2026, there were no conversions of Series B convertible preferred stock. During the nine months ended September 30, 2025, certain holders of the Series B convertible preferred stock converted an aggregate of 5 shares of Series B convertible preferred stock into 95 shares of the Company’s common stock. No cash was exchanged in connection with the conversion.

Warrants

On June 10, 2026, the Company issued warrants as described above. As of September 30, 2026, the following warrants to purchase shares of the Company’s common stock were outstanding:

There wereno warrant exercises during the three and nine months ended September 30, 2026 and 2025. On June 21, 2025, 187,500 warrants granted in December 2020 expired. The following expired in 2025:300,000 warrants granted in January 2021 expired on July 8, 2025; and 701,667 warrants granted in March 2021 expired on September 22, 2025.

Upon any exercise for cash of any June 2026 Series A warrants or June 2026 Series B warrants, the Company has agreed to pay the Placement Agent a cash fee equivalent to 7.0% of the aggregate gross exercise price of the warrants. In addition, the Company has agreed to issue to the Placement Agent or its designees, upon any exercise for cash of any warrants issued in the Offering, warrants to purchase such number of shares of common stock equal to 3.0% of the aggregate number of such shares of common stock underlying any exercised warrants.

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 and nine months ended September 30, 2026 and 2025.

NOTE 12: COMMITMENTS AND CONTINGENCIES

Litigation and Contingencies

From time to time, the Company is subject to 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 September 30, 2026, the Company's estimated non-cancellable commitment for clinical trial enrollment costs was $3.6 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 September 30, 2026,337,000 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 nine months ended September 30, 2026:

As of September 30, 2026, the unrecognized stock-based compensation expense associated with unvested RSUs was $1.4 million. The RSUs typically vest over aone tothree year period and carry aten year term.

The following table shows a summary of all stock option activity for the nine months ended September 30, 2026:

As of September 30, 2026, there were 156,105 unvested stock options outstanding, and the unrecognized stock-based compensation expense associated with unvested stock options was $1.3 million. The associated stock-based compensation expense is expected to be recognized over a weighted-average period of 1.64 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 of up to 6% of deferrals. Employees may also be eligible for a discretionary match over 6%. Employer matching contributions under the defined contribution plan were $45 thousand and $147 thousand for the three and nine months ended September 30, 2026, respectively, and $48 thousand and $186 thousand for the same periods in 2025, 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 Chief Executive Officer. 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 October 8, 2026, the Company entered into a Stapled Contingent Value Rights Agreement (the CVR Agreement) with VStock Transfer, LLC, as rights agent.

Each Stapled CVR entitles its holder to a pro rata share of any “CVR Payment,” which is an aggregate amount equal to 25% of the net proceeds of the sale or deemed monetization of the first priority review voucher (the “Qualifying Voucher”) awarded on or before December 31, 2036 (the “Outside Date”), which the Company’s Board of Directors may extend, in respect of the approval of a marketing application for (Z)-endoxifen for Duchenne muscular dystrophy or McCune-Albright syndrome, or any other product candidate being developed by the Company or its subsidiaries as of the date of the CVR Agreement. CVR Payments are capped at $50 million and will equal the lesser of 25% of the net proceeds and the unused portion of the cap. To the extent the Company uses the Qualifying Voucher for its own application, or a change of control of the Company occurs while it holds an unsold Qualifying Voucher, such event will be treated as a deemed monetization at a fair market value determined by an independent financial advisor.

In connection with the execution of the CVR Agreement, the Company’s Board of Directors declared a dividend of one stapled contingent value right (each a Stapled CVR) for each share of the Company’s common stock outstanding at the close of business on October 19, 2026 (the Record Date). Each share of the Company’s common stock issued after the Record Date and prior to any detachment of the CVRs or expiration of the CVR Agreement will also carry one Stapled CVR.

The Stapled CVRs will expire on the Outside Date if no Qualifying Voucher has been awarded by then. If the Qualifying Voucher is awarded on or before the Outside Date, the Stapled CVRs will remain outstanding until all CVR Payments in respect of it have been paid and no further payments are or may become payable, or until the $50 million cap has been paid in full.