Atossa Therapeutics(ATOS) - 2019 Q4 - Annual Report

Part I Business Atossa Therapeutics is a clinical-stage biopharmaceutical company focused on developing novel therapeutics for breast cancer and other breast conditions, with a lead program in oral Endoxifen - The company's lead program is the development of Endoxifen to treat and prevent breast cancer, with a primary goal of developing an oral form to reduce mammographic breast density (MBD)[16] - A Phase 2 double-blinded, placebo-controlled study of oral Endoxifen in approximately 1,000 pre-menopausal women with MBD was contracted in December 2019[16] - Atossa is also developing a proprietary intraductal delivery technology to target therapies, including fulvestrant and CAR-T, directly to the site of breast cancer; a Phase 2 study delivering fulvestrant via this method is being conducted by Johns Hopkins University[17][43] - The company estimates the potential U.S. market for its Endoxifen programs at up to $1 billion annually and for intraductal administration of drugs like fulvestrant at up to $800 million annually[48] Research and Development Expenses (2018-2019) | Year | R&D Expenses (USD) | | :--- | :--- | | 2019 | $6,645,417 | | 2018 | $4,209,981 | - As of February 29, 2020, the company owns 6 issued U.S. patents and has 40 pending patent applications related to its Endoxifen, Fulvestrant, and CAR-T programs[55] Risk Factors The company faces substantial risks, including a limited operating history, recurring net losses, and significant doubt about its ability to continue as a going concern without securing additional capital - The company has a history of recurring losses and an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern without obtaining adequate capital[116] - Existing resources are expected to be sufficient to fund operations for only the next six to nine months, necessitating additional capital raising[118][119] - The development of pharmaceutical products is highly uncertain; promising compounds may fail in later-stage clinical trials due to safety, efficacy, manufacturing, or other issues[135][136] - The company is dependent on third parties for critical operations, including manufacturing (cGMP), clinical trials (GCP), and distribution; failure by these parties to perform could significantly harm the business[156][157][160] - The company's common stock has traded below the $1.00 minimum bid price requirement for NASDAQ, posing a risk of delisting[211] - The global spread of the coronavirus (COVID-19) could adversely impact operations, including interrupting the drug supply chain, delaying clinical trial enrollment, and affecting access to capital[238] Unresolved Staff Comments The company reports that this item is not applicable, indicating there are no unresolved comments from the SEC staff - Not applicable[240] Properties As of December 31, 2019, Atossa Therapeutics leases approximately 202 square feet of office space in Seattle, Washington, believing these facilities are adequate for its needs for the next eight months - The company leases approximately 202 square feet of office space in Seattle, Washington[241] Legal Proceedings The company states it is not currently a party to any material legal proceedings; a prior securities class action lawsuit was settled and approved by the court in July 2018, with the settlement amount fully funded by insurers - The company is not currently a party to any material legal proceedings[242] - A securities class action complaint filed in 2013 was settled in 2018 for $3.5 million, which was completely funded by the defendants' insurers; the case is considered closed[127][380] Mine Safety Disclosure This section is not applicable to the company's business operations - Not applicable[244] Part II Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is traded on The NASDAQ Capital Market under the symbol 'ATOS'; as of March 24, 2020, there were approximately 33 stockholders of record, and the company has never paid cash dividends nor plans to in the foreseeable future - Common stock trades on The NASDAQ Capital Market under the symbol 'ATOS'[245] - As of March 24, 2020, there were approximately 33 stockholders of record and approximately 16,000 beneficial holders[246] - The company has never declared or paid cash dividends and does not intend to in the future[247] Selected Financial Data This section is not applicable as the company qualifies as a smaller reporting company - Not applicable[247] Management's Discussion and Analysis of Financial Condition and Results of Operations For the year ended December 31, 2019, Atossa had no revenue and incurred a net loss of $17.2 million, a significant increase from the $11.4 million loss in 2018, driven by a 51% increase in operating expenses primarily from non-cash stock-based compensation; with $12.6 million in cash at year-end, management states there is substantial doubt about its ability to continue as a going concern, as funds are projected to last only six to nine months Comparison of Operating Results (2019 vs. 2018) | Metric | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | N/A | | R&D Expenses | $6,645,000 | $4,210,000 | +58% | | G&A Expenses | $10,620,000 | $7,224,000 | +47% | | Total Operating Expenses | $17,265,000 | $11,434,000 | +51% | | Net Loss | $(17,239,777) | $(11,404,934) | +51% | - The increase in both R&D and G&A expenses in 2019 was primarily attributed to non-cash stock-based compensation charges related to the cancellation of 2018 liability options and the grant of replacement options in 2019[264][265] - As of December 31, 2019, the company had $12.6 million in cash and cash equivalents; management believes these funds will only be sufficient to finance operations for six to nine months, raising substantial doubt about the company's ability to continue as a going concern[266] Cash Flow Summary (2019 vs. 2018) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Used in Operating | $(9,128,000) | $(8,962,000) | | Net Cash Provided by Financing | $11,337,000 | $12,291,000 | Quantitative and Qualitative Disclosures about Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Not applicable[282] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal years ended December 31, 2019 and 2018, with the independent auditor's report highlighting a 'Going Concern Uncertainty' due to recurring losses and an accumulated deficit - The independent auditor's report includes a paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to recurring losses from operations and an accumulated deficit[299] Consolidated Balance Sheet Data (as of Dec 31) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $12,581,136 | $10,380,493 | | Total Assets | $14,489,855 | $11,720,446 | | Total Liabilities | $1,333,850 | $2,915,436 | | Total Stockholders' Equity | $13,156,005 | $8,805,010 | Consolidated Statement of Operations Data (for year ended Dec 31) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Operating loss | $(17,265,425) | $(11,434,233) | | Net loss | $(17,239,777) | $(11,404,934) | | Net loss per share (basic and diluted) | $(2.03) | $(5.50) | - In March 2019, the company received approximately $11.3 million from the exercise of 2.8 million warrants issued in a 2018 financing[362] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that there were no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[282] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019, with a material weakness identified in June 2018 related to the accounting for a deemed dividend remediated during 2019 - Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019[283] - A material weakness identified in Q2 2018 concerning the calculation of a deemed dividend on Series B preferred stock was remediated as of December 31, 2019[286][288] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2019[285] Other Information The company reports no information for this item - None[288] Part III Part III of the report, encompassing Items 10 through 14, incorporates information by reference from the company's definitive Proxy Statement for its 2020 Annual Meeting of Stockholders Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2020 Annual Meeting of Shareholders - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement[291] Executive Compensation Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2020 Annual Meeting of Shareholders - Information regarding executive compensation is incorporated by reference from the 2020 Proxy Statement[292] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2020 Annual Meeting of Shareholders - Information regarding security ownership is incorporated by reference from the 2020 Proxy Statement[292] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2020 Annual Meeting of Shareholders - Information regarding related party transactions and director independence is incorporated by reference from the 2020 Proxy Statement[293] Principal Accounting Fees and Services Information required by this item is incorporated by reference from the company's definitive Proxy Statement for the 2020 Annual Meeting of Shareholders - Information regarding principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement[293] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report - This item lists the financial statements and exhibits filed with the 10-K, including the auditor's consent, certifications, and various corporate agreements[294][295] Form 10-K Summary This section is not applicable - Not applicable[295]