ATOSSA THERAPEUTICS, INC.
FORM 10-Q
QUARTERLY REPORT

INDEX 

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

ATOSSA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except for par value)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATOSSA THERAPEUTICS, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(amounts in thousands, except for per share amounts)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATOSSA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(amounts in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATOSSA THERAPEUTICS, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(amounts in thousands)

The accompanying notes are an integral part of these condensed consolidated financial statements.

ATOSSA THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 currently focused on development of its pharmaceuticals for the treatment of breast cancer and other breast conditions, lung injury caused by cancer treatments, and the novel coronavirus (COVID-19), breast cancer and other breast conditions.. The Company’s fiscal year ends on December 31.

Impact of the Novel Coronavirus

The ongoing COVID-19 pandemic may affect the Company's operations and those of third parties on which the Company relies, including causing possible disruptions in the supply of the Company's Endoxifen, AT-H201,AT- AT-301 and the pace of enrollment in our clinical trials.  In addition, the COVID-19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.  We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, however, we have not experienced a significant delay in the enrollment or the drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT-301 and AT-H201. Although there have been times when the number of reported COVID-19 cases has surged, there have also been times when the number of reported cases of COVID-19 has declined in many countries. If the number of COVID-19 cases decline or if antiviral therapies (such as paxlovid) become widely adopted, it may be difficult to enroll participants in our planned COVID-19 clinical studies.

NOTE 2: LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred net losses and negative operating cash flows since inception. For the threesix months ended MarchJune 31,30, 2022, the Company recorded a net loss of $4,786$11,457 and used $4,878$10,827 of cash in operating activities. As of March 31,June 30, 2022, the Company had $131,486$125,537 in cash and cash equivalents and working capital of $134,526.$129,629. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and 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 funding including the funds received from warrant exercises and the issuance of common stock and warrants with net proceeds of $113,486 during 2021, will be sufficient to finance the Company’s operations for at least one year from the date these condensed 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 ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared 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 has been no material change in the information disclosed in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of the Company for the year ended December 31, 2021. The year-end condensed consolidated balance sheet presented was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. All amounts have been presented in thousands, except for par value and other per share data.  

In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and sixmonths ended MarchJune 30, 2022, 31,2022,are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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. Actual results could differ from those estimates.

Segments

The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the company level as 1 segment.

Research and Development

Research and development (R&D) costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for the Company's drugs under development, expenses associated with clinical trials and associated salaries and benefits. The Company has entered into various research and development contracts with research institutions, clinical research organizations, clinical manufacturing organizations and other companies. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and payments made in advance of performance are reflected in the accompanying condensed consolidated balance sheets as prepaid expenses. The Company records accruals for estimated costs incurred for ongoing research and development activities. When evaluating the adequacy of the accrued expenses, the Company analyzes progress of the services, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the prepaid expense or accrued expense balances at the end of any reporting period. Actual results could differ from the Company’s estimates.

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 total hours expended on research and development activities. The Company's CEO is involved in the development of the Company's drug candidates and oversight of the related clinical trial activity.

Fair Value Measurements

The Company records financial assets and liabilities measured on a recurring and non-recurring basis as well as all non-financial assets and liabilities subject to fair value measurement at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. These fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company's assumptions used to measure assets and liabilities at fair value. An asset or liability's classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Also refer to Note 8. 

Stock-based Payments

The Company measures and recognizes compensation expense for all stock-based payment awards made to employees, non-employee directors, and consultants, including employee stock options. Stock compensation expense is based on the estimated grant date fair value and is recognized as an expense over the requisite service period.  The Company has made a policy election to recognize forfeitures when they occur.

The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of the stock options, the expected life of the options, an expectation regarding future dividends on the Company’s common stock, and estimation of an appropriate risk-free interest rate. The Company’s expected common stock price volatility assumption is based upon the historical volatility of our 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 ten years with the vesting term, typically one to four years, as the Company does not have sufficient history of option exercise experience. The dividend yield assumption of 0 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 used for each grant was based upon prevailing short-term interest rates over the expected life of the options.

Recently Adopted Accounting Pronouncements

On May 3, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options — a consensus of the FASB Emerging Issues Task Force. The ASU provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense. As there were no modifications or exchanges of freestanding equity-classified warrants during the quarterthree or six months ended March 31,June 30, 2022, the standard did not have an impact on the condensed consolidated financial statements. 

On January 1, 2022, the Company adopted ASU 2021-10 Annual Disclosure Requirements for Business Entities Receiving Government Assistance.Assistance (Topic 832), – Disclosures by Business Entities about Government Assistance, which requires business entities to disclose information about transactions with a government that are accounted for by applying a grant or contribution model by analogy. For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction. The disclosure of the Company's research and development rebate receivable is detailed in Note 6.

NOTE 4: RESTRICTED CASH

The Company's restricted cash balance of $110as of March 31,June 30, 2022 and December 31, 2021, consists entirely of cash pledged as security for the Company’s issued commercial credit cards.

NOTE 5: PREPAID EXPENSES

Prepaid expenses consisted of the following:

NOTE 6: RESEARCH AND DEVELOPMENT REBATE RECEIVABLE

 On May 23, 2017, Atossa 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 our Phase 1 and Phase 2 Endoxifen and COVID-19 clinical trials. Australia offers an R&D cash rebate of $0.435 per dollar spent on qualified R&D activities incurred in the country. The Australian R&D tax incentive program is a self-assessment process, and as such, the Australian Government has the right to review the Company’s qualifying programs and related expenditures for a period of four years. If such a review were to occur, and as a result of the review and failure of a related appeal a qualified program and related expenditures werecould be disqualified, and the respective R&D rebates could be recalled with penalties and interest. The Company uses the grant accounting model by analogy to International Accounting Standards (IAS) 20 to account for the cash rebates received byfrom the Australian government.

During the three and sixmonths ended MarchJune 30, 2022, 31,2022 and 2021,the Company incurred qualified R&D expenses in Australia of $354 $607and $270, $930, respectively. Qualified R&D expenses incurred by the Company were $275 and $546 during the three and six months ended June 30, 2021, respectively. During the quartersix months ended March 31,June 30, 2022 and year ended December 31,June 30, 2021, the Company collected R&D cash rebates of $563 $629and $0,$0, respectively. At March 31,June 30, 2022 and December 31, 2021, we had a total research and development rebate receivable of $668 $900and $1,072, respectively. TheWe record the R&D rebate credit in the period when we incur the associated R&D cost. As such, the rebate reduced the Research and Development expense line item on the Condensed Consolidated Statements of Operations by $140$264 and $107 $404for the three and sixmonths ended March 31,June 30, 2022 and $109 and $216 for the same periods in 2021, respectively.

The Company had realized (losses) and gainslosses on foreign currency exchange, related to the research and development rebate receivable balance, during the three and sixmonths ended March 31,June 30, 2022 of $85and March 31, 2021, of $28$114, respectively, and $6, respectively, which is$33 and $38 for the same periods in 2021, respectively. Foreign currency exchange gains and losses are included in Other expense, net in the Condensed Consolidated Statements of Operations. 

NOTE 7: PAYROLL LIABILITIES

Payroll liabilities consisted of the following:

NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

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

● Level 1 —Valuations are based on quoted prices in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities with quoted prices on active markets.

● Level 2 —Valuations based on inputs other than the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates of deposit and over-the- counter derivatives.

● Level 3 —Valuations based on unobservable inputs in which there are little or no market data, which require the Company to develop its own assumptions.

 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:

Warrants issued in December of 2020 contained provisions that may have required the Company to settle the warrants in cash in an event outside the Company’s control and were therefore accounted for as liabilities, with changes in the fair values included in net loss for the respective periods. Because some of the inputs to the valuation model were either not observable or were not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability was classified as Level 3 in the fair value hierarchy. On January 1, 2021, the Company early adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Topic 470) and Derivative Hedging - Contracts in an Entity's Own Equity (Topic 815). Upon adoption, the Company recorded a cumulative adjustment to beginning Stockholders' Equity in the amount of $13,003 to reclassify the common stock warrant liability to accumulated deficit and additional paid-in capital. 

The following table summarizes the changes in the Company’s Level 3 warrant liability for the threesix months ended MarchJune 31,30, 2021:

NOTE 9: STOCKHOLDERS’ EQUITY

The Company is authorized to issue a total of 185,000 shares of stock consisting of 175,000 shares of common stock, par value $0.18 per share, and 10,000 shares of preferred stock, par value $0.001 per share. The Company has designated 750 shares of Series A junior participating preferred stock, par value $0.001 per share, 4 shares of Series A convertible preferred stock, par value $0.001 per share, 25 shares of Series B convertible preferred stock, par value $0.001 and 20 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. NaNNo shares of Series A junior participating preferred stock, 0no shares of Series A convertible preferred stock and 0no shares of Series C convertible preferred stock are outstanding as of March 31, June 30,2022and December 31, 2021.

2021 Financing Transactions

On January 6, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 23,850 shares of Company common stock, par value $0.18 per share and warrants to purchase 17,888 shares of common stock. The combined purchase price for one share of common stock and a warrant to purchase 0.75 shares of common stock was $1.055. Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5-year anniversary of the date of issuance and have an exercise price of $1.055 per share. The common stock and warrants have been registered under the Securities Act of 1933, as amended. The offering closed on January 8, 2021 with net proceeds to the Company from the offering of $23,300 after deducting fees and expenses.

On March 22, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 17,361 shares of our common stock, par value $0.18 per share. Concurrently with the offering, and pursuant to the purchase agreement, the Company also commenced a private placement whereby it issued and sold warrants exercisable for an aggregate of up to 13,021 shares of common stock. The combined purchase price for one share of common stock and a purchase warrant to purchase 0.75 shares of common stock is $2.88. Subject to certain ownership limitations, the warrants are exercisable upon issuance. The warrants will expire on the 4.5-year anniversary of the date of issuance. Subsequent to the issuance of the warrants, the Company filed a registration statement on Form S-3 (File No. 333-255411) to cover the sale of an aggregate of 13,021 shares of common stock issuable upon exercise of the warrants which was declared effective by the SEC on April 29, 2021. The net proceeds to the Company from the offering and the private placement are $46,400, after deducting fees and expenses.

Series B Convertible Preferred Stock

Conversion. Each share of Series B convertible preferred stock is convertible at our option at any time on or after the first anniversary of the closing of the rights offering or at the option of the holder at any time, into the number of shares of our 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.

Fundamental Transactions. In the event we effect certain mergers, consolidations, sales of substantially all of our assets, tender or exchange offers, reclassifications or share exchanges in which our common stock is effectively converted into or exchanged for other securities, cash or property, we consummate a business combination in which another person acquires 50% of the outstanding shares of our common stock, or any person or group becomes the beneficial owner of 50% of the aggregate ordinary voting power represented by our issued and outstanding common stock, then,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.

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 our liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series B convertible preferred stock will be entitled to receive out of our 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. We are 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.

Warrants 

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 us a duly executed exercise notice and payment in full for the number of shares of our 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, stock dividend on, or a subdivision, combination or recapitalization of the common stock. Upon the merger, consolidation, sale of substantially all of our 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 the 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 our common stock purchasable upon such exercise.

Exercise Price. Each warrant represents the right to purchase one share of common stock. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications, and for certain dilutive issuances. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99% of the number of shares of our 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 our 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. We do 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 our stockholders.

 Warrants Outstanding

As of MarchJune 30, 2022, 31,2022,warrants to purchase 22,277 shares of common stock were outstanding including: 

Warrant Activity

There were 0no warrant exercises during the three and sixmonths ended March 31, June 30,2022.During the three and sixmonths ended March 31, June 30,2021,the Company received $32,760$10,196 and $42,956 respectively, from the exercises of warrants. The warrant exercises resulted in the reduction of 32,0635,091 and 37,154 warrants, respectively, for the three and six months ended June 30, 2021 and the issuance of 32,0635,091 and 37,154 shares of common stock.stock for the same periods. 

Conversion of Convertible Preferred Stock

  During the three and sixmonths ended March 31,June 30, 2022, there were 0no conversions of Series B convertible preferred stock. During the three and sixmonths ended March 31, June 30,2021,certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 0.001 share,0.033 and 0.034 shares, respectively, into 0.2859 and 9 shares of the Company's common stock. 

NOTE 10: NET LOSS PER SHARE 

The Company follows the two-class method when computing net loss per share as the Company has issued warrants and preferred stock that meet the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividends. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares that would have been outstanding during the period assuming the issuance of common shares for all potential dilutive common shares outstanding. Potential common shares consist of potential future exercises of outstanding stock options and common stock warrants. Because the inclusion of potential common shares would be anti-dilutive for all periods presented, they have been excluded from the calculation.

The Company’s warrants and preferred stock contractually entitlesentitle 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. Accordingly, in periods in which the Company reports a net loss, such losses are not allocated to such participating securities. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for the yearsthree and six months ended March 31,June 30, 2022, and 2021.

The following table summarizes the Company’s calculation of net loss per common share:

The following table sets forth the weighted average number of potential common shares excluded from the calculation of net loss per diluted 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. No income tax liabilities existed as of March 31,June 30, 2022 and December 31, 2021, due to the Company’s continuing operating losses.

NOTE 12: CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits which include a money market account. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250. As of March 31, June 30,2022and December 31, 2021, the Company had $131,279 $125,332and $136,185, respectively, including restricted cash, in excess of the FDIC insured limit, respectively.

NOTE 13: COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company evaluates all contractual agreements at inception to determine if they contain a lease. Lease liabilities are measured at present value of lease payments not yet paid, using a discounted cash flow model that requires the use of a discount rate, or incremental borrowing rate. Lease terms of 12 months or less are considered short term operating leases and no asset or liability is recognized.

Our office lease expired February 28, 2022. In March 2022, the Company entered into a new operating lease for office space to pay monthly rent of $1 for a term of 12 months. The Company had lease expense under short term leases of $8 and $5 during the three and sixmonths ended March 31, June 30,2022, of $2 and $8, respectively. Lease expense under short term leases during the threeand six months ended June 30, 2021were $7 and $12, respectively. As of March 31, June 30,2022and December 31, 2021, the right of use asset and lease liability balances were $0.

Litigation and Contingencies

We are subject to legal proceedings and claims that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

NOTE 14: STOCK BASED COMPENSATION

Stock Option and Incentive Plan

On March 24, 2020, the Board of Directors approved the adoption of the 2020 Stock Incentive Plan (2020 Plan) to provide for the grant 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 the date that is 10 years from the date of stockholder approval. An aggregate of 3,000 shares were initially reserved for issuance in connection with awards granted under the 2020 Plan. On May 14, 2021, the stockholders approved an additional 15,000 shares available for issuance under the 2020 Plan. There are 9,2148,086 options available for grant under the 2020 Plan as of March 31,June 30, 2022.

The Company granted options to purchase 2,7221,128 and 03,849 shares of common stock to employees during the three and sixmonths ended March 31, 2022June 30, 2022. For the threeand 2021,six respectively.months ended June 30, 2021, the Company granted 3,644 options to employees to purchase shares of common stock. The weighted average grant date fair value of options granted during the three and sixmonths ended March 31,June 30, 2022 was $1.07.$0.80 and $0.99, respectively, and $2.55 and $2.55 for the same periods in 2021, respectively. There were 0 options exercised during the three and sixmonths ended MarchJune 31,30, 2022 and 2021. 

The fair value of stock options granted for the three and sixmonths ended March 31,June 30, 2022 and 2021,was calculated using the Black-Scholes option-pricing model applying the following assumptions:

		Three Months Ended June 30,					Six Months Ended June 30,
		2021					2021
Risk-free interest rate		0.89%	-	1.08%			0.89%	-	1.08%
Expected term (in years)		5.31	-	6.17			5.31	-	6.17
Dividend yield			-					-
Expected volatility		122%	-	130%			122%	-	130%

Options issued and outstanding as of March 31,June 30, 2022, and their activities during the threesix months ended are as follows:

At March 31,June 30, 2022, there were 5,4705,458 unvested options outstanding and the related unrecognized total compensation cost associated with these options was $8,279.$7,405. This expense is expected to be recognized over a weighted-average period of 1.481.37 years.

Defined Contribution Plan

The Company has a defined contribution plan to which employees of the Company may defer compensation 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%. Defined contribution plan employer matching contributions for the three and sixmonths ended March 31,June 30, 2022 were $36 and $68, respectively and for the same periods in 2021, were $34$13 and $33,$46, respectively.

NOTE 15: SUBSEQUENT EVENT

On July 1, 2022, the Company entered into a letter agreement (the “Letter Agreement”) with 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 “CAR-T Company”). The Letter Agreement requires that up until November 1, 2022 the CAR-T Company will (i) negotiate exclusively with the Company for the Company to acquire the CAR-T Company, and (ii) address certain matters related to personnel, operations and intellectual property. The Company paid $2,700 in July 2022 for the exclusive right to negotiate with the CAR-T Company. If a definitive agreement is not reached for the Company to acquire the CAR-T Company and if a specified material adverse event has not occurred, then the Company will pay an additional $2,000 for a 19.99% preferred stock equity interest in the CAR-T Company. The Company is under no obligation to complete the acquisition of the CAR-T Company and no assurance can be given that an acquisition will be completed on acceptable terms or at all.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements, which are based on assumptions about the future of the Company’s business. The actual results could differ materially from those contained in the forward-looking statements. Please read “Forward-Looking Statements” included below for additional information regarding forward-looking statements.

Forward-Looking Statements

This report contains, in addition to historical information, certain information, assumptions and discussions that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have made these statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated. Although we believe our assumptions underlying our forward-looking statements are reasonable as of the date of this report, we cannot assure you that the forward-looking statements set out in this report will prove to be accurate. We typically identify these forward-looking statements by the use of forward-looking words such as “expect,” “potential,” “continue,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or the negative version of those words or other comparable words. Forward-looking statements contained in this report include, but are not limited to, statements about:

These and other forward-looking statements made in this report are presented as of the date on which the statements are made. We have included important factors in the cautionary statements included in this report, particularly in the section titled “ITEM 1A. RISK FACTORS,” that we believe could cause actual results or events to differ materially from the anticipated results as set forth in the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any new information, future events or circumstances that may affect our business after the date of this report. Except as required by law, we do not intend to update any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events or circumstances or otherwise.

Company Overview

We are a clinical-stage biopharmaceutical company seeking to develop proprietary innovative medicines in areas of significant unmet medical need in oncology and infectious diseases, with a current focus on breast cancer, other breast conditions, lung injury caused by cancer treatments, and COVID-19. Our drug under development for breast cancer and other breast conditions is Endoxifen which is being developed primarily in two settings: one to reduce tumor cell activity in breast cancer patients in the neoadjuvant setting, meaning prior to surgery; and another to reduce dense breast tissue in women. Our two COVID-19 drugsdrug under development arefor lung injury caused by cancer treatments is AT-H201, an inhalation therapy to improve lung function of moderate to severely ill, hospitalizedtherapy; and our COVID-19 patients; anddrug under development is AT-301, a nasal spray for COVID-19 patients for at-home use. A key feature of the original SARS-CoV-2 virus that is retained in both the Delta and Omicron variants, is the furin cleavage site found on the spike protein which facilitates viral infection. Our COVID-19 programs under development are designed to interact with this cleavage site so they are expected to be effective against both current and future COVID-19 variants that continue to contain a furin cleavage site.

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

Summary of Leading Programs

Endoxifen. Endoxifen is an active metabolite of tamoxifen which is an FDA-approved drug to treat and prevent breast cancer in high-risk women. We are developing a proprietary form of Endoxifen which is administered orally for the potential treatment of breast cancer and women with breast density. We have successfully completed three Phase 1 clinical studies (including a study in men) and two Phase 2 clinical studies with our proprietary Endoxifen. We have also completed significant pre-clinical development and have established clinical manufacturing capabilities through qualified third parties.

Endoxifen for Women with Breast Density.  Mammographic breast density (MBD) is an emerging public health issue affecting over 10 million women in the U.S. Studies conducted by others have shown that MBD increases the risk of developing breast cancer and that reducing MBD can reduce the incidence of breast cancer.

In December 2021, we commenced a Phase 2 study of our proprietary oral Endoxifen. The study, known as the Karisma-Endoxifen study, is a Phase 2, randomized, double-blind, placebo-controlled, dose-response study of our proprietary oral Endoxifen in healthy premenopausal women with measurable breast density. The primary objective of the study is to determine the dose-response relationship of daily Endoxifen on breast density reduction. Secondary endpoints will assess safety and tolerability, and the trial includes an exploratory endpoint to assess durability of the breast density changes. The study is being conductedcurrently enrolling at the South General Hospital in Stockholm and will include approximately 240 participants who will receive daily doses of Endoxifen or placebo for six months. The study is being led by principal investigator Per Hall, M.D., Ph.D., Department of Medical Epidemiology and Biostatistics at Karolinska Institutet.

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

Endoxifen for Neoadjuvant Treatment of Breast Cancer.  We are also developing Endoxifen to treat breast cancer in the neoadjuvant setting, which is the administration of a therapy before the surgical treatment, with a current focus on breast cancers that are classified as estrogen receptor positive (ER+). Although there are numerous neoadjuvant treatments for breast cancers that are not ER+, there are few neoadjuvant treatments for ER+ breast cancer which comprises about 78% of all breast cancers. We believe there is a compelling need for therapy with our Endoxifen in this setting.

On May 31, 2022, we submitted an Investigational New Drug (IND) application to the U.S. Food and Drug Administration (FDA) for the pre-surgical treatment of patients with ER+ and HER2 negative (ER+/HER2-) breast cancer. The initial investigation will be a Phase 2 study of premenopausal women with ER+/HER2- breast cancer titled “A Randomized Phase 2 Noninferiority Trial of (Z)-endoxifen and Exemestane + Goserelin as Neoadjuvant Treatment in Premenopausal Women with ER+/HER2- Breast Cancer.” Exemestane is an estrogen modular to treat certain types of breast cancer and goserelin is a horomonal therapy to treat certain types of breast cancer and other cancers. This study is designed to first determine a target dose for therapy and then to investigate the safety and efficacy of Endoxifen therapy for premenopausal women with ER+/HER2- breast cancer. 

In December 2021, we completed a PIND meeting with the FDA. The purpose of the meeting wasresponse to obtain input fromour IND application, the FDA on pre-clinical, clinical, manufacturing and regulatory matters incommunicated to us that the U.S. for our proprietary Endoxifen to treat breast cancer. Based in part on the feedback from the FDA,IND requires additional information which we plan to open an IND for a multi-center Phase 2 study to further advance our Endoxifen insubmit by the neoadjuvant setting.end of the third quarter 2022. We plan to focus our developmentinitiate enrollment into the neoadjuvant study in the fourth quarter 2022. Unless and until the required information, and any additional information the FDA may require, can be provided to the FDA the neoadjuvant study is on pre-menopausal women with ER+, human epidermal growth factor receptor 2 negative (HER2-) breast cancer for whomclinical hold and cannot commence. No assurance can be provided that the current treatment options typically include drugsFDA will accept the information we plan to provide or that suppress ovarian function and essentially force the patient into menopause.neoadjuvant study will commence.

We recently completed a Phase 2 study in Australia which enrolled 7 newly diagnosed patients with ER+ and stage 1 or 2 invasive breast cancer, requiring mastectomy or lumpectomy. In February 2021, we concluded that the study produced substantially positive results and that continuing enrollment in the study would not be necessary in advancing the program. We therefore discontinued the study based in part on results from the first six patients. In June 2021, we reported final results from the study of all 7 patients which showed that tumor cell proliferation in study participants was reduced by an average of 65%, as measured by Ki-67 expression, which is a common measure of tumor cell activity in breast cancer. 

AT-H201 for Compromised Lung Function Caused by Cancer Treatments. AT-H201 consists of a proprietary combination of two drugs previously approved by the FDA to treat other diseases.  AT-H201 is intended to be inhaled via nebulizer with the goal of preventing or reducing lung injury. In July 2022, we completed dosing in a placebo-controlled Phase 1/2a study of AT-H201 in healthy participants in Australia. The study originally had four parts: Part A – a single ascending dose part; Part B – a multiple ascending dose part; Part C – a combination part in healthy individuals; and Part D – a combination in COVID-19 infected patients. After we completed dosing in Parts A, B and C of the study we decided not to proceed with Part D; rather, we shifted the development of AT-H201 to more closely align with our oncology focus by continuing development of AT-H201 in patients with compromised lung-function due to the damaging effects of cancer treatment, including, for example, lung injury caused by radiation treatment, which is poorly treated with current therapies and is often irreversible.

Radiation induced lung injury (or, RILI) is damage to the lungs caused by ionizing radiation administered to treat cancer. RILI is a significant issue for patients undergoing radiation treatment for various forms of cancer and is often irreversible.  For instance, RILI affects 30-40% of lung cancer patients, and approximately 35% of esophageal cancer patients.  In non-small cell cancer patients receiving concurrent chemotherapy and radiation therapy the incidence of RILI is estimated to be greater than 60%. We believe RILI affects a significant number of patients across multiple cancer types and there is a meaningful need for new treatments.

AT-301 for COVID-19.  AT-301 is our proprietary drug formulation candidate intended for nasal administration in patients immediately following diagnosis of COVID-19 but who have not exhibited symptoms severe enough to require hospitalization. It is intended for at-home use to reduce symptoms of COVID-19 and to slow the infection rate so that a person’s immune system can more effectively fight COVID-19.

AT-301 is being developed with a nasal spray delivery mechanism because many COVID-19 patients are infected via the nasal passage. Our nasal spray formulation AT-301 is being designed to contain ingredients that can potentially block SARS-CoV-2 viral entry in nasal epithelial cells by interfering with spike protein activation by host proteases, by masking receptor binding domains via electrostatic mechanisms, and by providing a generalized mucoadhesive epithelial barrier.

In October 2020, we completed enrollment in a Phase 1 study of AT-301 which was a double-blinded, randomized, and placebo-controlled safety study of AT-301 nasal spray in 32 healthy adult subjects. An evaluation of the data indicated that there were no serious adverse events, no discontinuations, and only one of the subjects in the study experienced adverse events that were considered related to the study drug and moderate in severity. We concluded that our AT-301 nasal spray was safe and well tolerated in this study. We received input from the FDA on this program in 2021 and based in part on that input, we are now preparing to conduct additional pre-clinical studies. Following that, we expect to apply to the FDA to commence a Phase 2 study in the United States.

We may also develop our AT-301 nasal spray to potentially help prevent COVID-19 infection — particularly for people in high-risk environments, such as people living with an infected patient, people living and working in healthcare facilities, emergency responders or teachers.

AT-H201 forA key feature of the original SARS-CoV-2 virus that is retained in both the Delta and Omicron variants, is the furin cleavage site found on the spike protein which facilitates viral infection. Our COVID-19. AT-H201 program under development is designed to interact with this cleavage site so it is expected to be effective against both current and future COVID-19 variants that continue to contain a proprietary combination of two drugs previously approved by the FDA to treat other diseases. It is intended to improve compromised lung function for moderate to severely ill, hospitalized COVID-19 patients by inhalation. We also intend to study AT-H201 on long haul COVID-19 survivors. We received input from the FDA on potential pathways to develop AT-H201 and the FDA requested that we provide, among other things, additional pre-clinical results and other information on AT-H201. furin cleavage site.

In September 2021 we began enrollment in Australia in a Phase 1/2a study of AT-H201 and in April 2022, we completed enrollment in the second of four parts of the study. The study plans to enroll 60 healthy participants and moderately ill hospitalized COVID-19 patients. An Australian human research ethics committee will review data after each part of the study before we may proceed with subsequent parts of the study. Because the final part of the study in COVID-19 infected patients may require that we use additional study sites, approval of that part of the study and additional sites will depend on COVID-19 infections and may therefore be delayed.

Impact of the Novel Coronavirus

The ongoing COVID-19 pandemic may affect our operations and those of third parties on which we rely, including causing possible disruptions in the supply of Endoxifen, AT-H201, AT-301, the pace of enrollment in our clinical trials and the conduct of current and future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the U.S. FDA and other health authorities including similar entities/agencies in Sweden and Australia, which could result in delays in meetings, reviews and approvals. Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole as a result of the COVID-19 pandemic; however, we have not experienced a significant delay in the enrollment or the drug supply for our ongoing and planned clinical studies, including studies of Endoxifen, AT-301 and AT-H201. Although there have been times when the number of reported COVID-19 cases has surged, there have also been times when the number of reported cases of COVID-19 has declined in many countries. If the number of COVID-19 cases decline or if antiviral therapies (such as paxlovid) become widely adopted, it may be difficult to enroll participants in our planned COVID-19 clinical studies.

Research and Development Phase

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

Commercial Lease Agreements

Refer to Note 13 Condensed Consolidated Financial Statements.   

Critical Accounting Policies and Significant Estimates

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

While our significant accounting policies are more fully described in Note 3 to our condensed consolidated financial statements included in this Form 10-Q, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.

Research and Development

As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and work orders, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the associated cost incurred for the services, including, in some cases, when we have not yet been invoiced or otherwise notified of actual costs. R&D costs are generally expensed as incurred. R&D expenses include, for example, manufacturing expense for our drugs under development, expenses associated with preclinicalpre-clinical studies, clinical trials and associated salaries, bonuses, stock-based compensation and benefits. R&D expenses also include an allocation of the CEO's salary and related benefits including bonus and non-cash stock-based compensation expense based on an estimate of his total hours expended on research and development activities.

We have entered into various research and development contracts with research institutions, clinical research organizations (CRO), clinical manufacturing organizations (CMO) and other companies. The majority of our service providers invoice us monthly for services performed, however, payments under some of these contracts may be required in advance of the services being performed, for example when a contract requires an initial payment at the outset of the contract. Payments made in advance of performance of services are reflected in the accompanying condensed consolidated balance sheets as prepaid expenses. 

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

Stock-Based Payments

We measure all stock option awards gratedgranted to employees, non-employee directors and consultants based on the fair value on the date of grant and recognize compensation expense over the estimated requisite estimated service period which is generally the vesting period of the respective award. The straight-line method of expense recognition is applied to all awards with service-only conditions. We account for forfeitures as they occur.

The fair value of each option grant is estimated using the Black-Scholes option-pricing model, which requires assumptions regarding the expected volatility of our stock options, the expected life of the options, an expectation regarding future dividends on our common stock and  estimation of an appropriate risk-free interest rate and expected term.rate. Our expected common stock price volatility assumption is based upon the historic volatility of our stock price. The expected life assumption for stock option grants is based an average of the contractual term of the options of ten years with the average vesting term of one to four years. The dividend yield assumption of zero is based upon the fact that we have never paid cash dividends and presently have no intention of paying cash dividends in the future. The risk-free interest rate used for each grant was based upon prevailing short-term interest rates over the expected life of the options.

While assumptions used to calculate and account for share-based compensation awards represent management’s best estimates, these estimates involve inherent uncertainties and the application of management’s judgement. As a result, if revisions are made to our underlying assumptions and estimates, our share-based compensation expense could vary significantly from period to period.

Results of Operations

Comparison of the three months ended MarchJune 3031,, 2022 and 2021 (amounts in thousands)

Revenue and Cost of Revenue: For the three months ended March 31,June 30, 2022 and 2021, we havehad no source of sustainable revenue and no associated cost of revenue.

Operating Expenses: Total operating expenses were $4,747$6,595 for the three months ended March 31,June 30, 2022, which is an increasea decrease of $1,216$409 or 34%6%, from the three months ended March 31, 2021.June 30, 2021, of $7,004. Operating expenses for 2022 consisted of research and development (R&D) expenses of $1,499$3,433 and general and administrative (G&A) expenses of $3,248.$3,162. Operating expenses for 2021 consisted of R&D expenses of $1,379,$3,799, and G&A expenses of $2,152.$3,205. The basis for the decreased operating expenses in 2022 is explained below.

Research and Development Expenses: R&D expenses for the three months ended June 30, 2022, were $3,433, a decrease of $366 or 10% from total R&D expenses for the same period in 2021 of $3,799. Clinical and non-clinical trial costs as well as drug formulation and analysis for our clinical trials were consistent quarter over quarter. Total R&D compensation expense increased primarily due to an increase in stock-based compensation of $270 and increased salaries, bonus and benefits of $123. In addition, the Company paid a no-shop fee of $300 to negotiate the potential acquisition of a company focused on 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.Included in 2021 R&D expenses is an increase of $1,000 attributable to a one-time fee we paid in June 2021 to a U.S. leading research institution for the exclusive right to negotiate for the acquisition of the world-wide rights to two oncology R&D programs. 

General and Administrative Expenses: G&A expenses were $3,162 for the three months ended June 30, 2022, a decrease of $43, or 1% from the total G&A expenses for the three months ended June 30, 2021, of $3,205.G&A expenses for the three months ended June 30, 2022, increased $454 primarily due to an increase in non-cash stock-based compensation expense of $287 and an increase in other compensation of $167 due to the addition of a new employee quarter over quarter as well as salary, bonus and benefits increases. This increase was offset by a decrease of $533 in professional fees primarily due to a decrease in proxy costs in 2022. 

Income taxes: We have incurred net operating losses from inception; we did not record an income tax benefit for our incurred losses for the three months ended June 30, 2022 and 2021, due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses.

Comparison of the six months ended June 30, 2022and 2021 (amounts in thousands)

Revenue and Cost of Revenue: For the six months ended June 30, 2022 and 2021, we had no source of sustainable revenue and no associated cost of revenue.

Operating Expenses: Total operating expenses were $11,348 for the six months ended June 30, 2022, which is an increase of $814 or 8%, from the six months ended June 30, 2021 of $10,534. Operating expenses for 2022 consisted of R&D expenses of $4,937 and general and G&A expenses of $6,411. Operating expenses for 2021 consisted of R&D expenses of $5,177, and G&A expenses of $5,357. The basis for the increased operating expenses in 2022 is explained below.

Research and Development Expenses: R&D expenses for the threesix months ended March 31,June 30, 2022, were $1,499, an increase$4,937, a decrease of $120$240 or 9%5% from total R&D expenses for the same period in 2021 of $1,379. The increase in$5,177. R&D expense is attributed to increased spending on clinical and non-clinical trialsexpenses decreased because of $584 over 2021 due to additional drug manufactuing costs. Stock-based compensation, which is a non-cash charge, also increased $433 quarter over quarter, and other R&D compensation was up $79 due to salary bonus and benefit increases quarter over quarter. The increase in R&D was offset by a refund of $1,000 from the research institution that the Company had an exclusive right to negotiate for the acquisition of the world-wide rights to two oncology R&D programs. In February 2022, the other party did not honor its obligation to negotiate with us which lead to a cancellation of the agreement and refund of the $1,000 previously paid. Included in 2021 R&D expenses is an increase of $1,000 attributable the same one-time fee paid in June 2021. Additionally, on June 27, 2022, this decrease was offset by increased spending on clinical and non-clinical trials of $434 over the same period in 2021 due to additional drug manufacturing costs. Stock-based compensation, which is a non-cash charge, also increased $703 period over period, and other R&D compensation was up $202 due to salary bonus and benefit increases. Professional expenses also increased $100 during the six months ended June 30, 2022 as compared to the same period in 2021. Finally, we paid them. $300 for the exclusive right to negotiate with a CAR-T Company for us to acquire the company.

General and Administrative Expenses: G&A expenses were $3,248$6,411 for the threesix months ended March 31,June 30, 2022, an increase of $1,096,$1,054 or 51%20% from the total G&A expenses for the threesix months ended March 31,June 30, 2021, of $2,152.$5,357. The increase in G&A expenses for the threesix months ended March 31,June 30, 2022, is primarily attributable to the increase in non-cash stock-based compensation expense of $734. Other compensation$1,020. Compensation expense also increased $264$431 due to the addition of a two new employee quarteremployees year over quarteryear as well as salary, bonus and benefit increases. Legal fees also increased $124 quarter$147 period over quarterperiod due to increased patent activity. These increases are offset by the decrease in professional fees of $532 due primarily to the reduction of proxy costs period over period. 

Income taxes: We have incurred net operating losses from inception; we did not record an income tax benefit for our incurred losses for the threesix months ended March 31,June 30, 2022 and 2021, due to uncertainty regarding utilization of our net operating carryforwards and due to our history of losses.

Liquidity and Capital Resources

We have incurred net losses and negative operating cash flows since inception. For the threesix months ended March 31,June 30, 2022, we recorded a net loss of $4,786$11,457 and used $4,878$10,827 of cash in operating activities. As of March 31,June 30, 2022, we had $131,486$125,537 in cash and cash equivalents and working capital of $134,526.$129,629. We believe we have sufficient cash to fund our projected operating requirements for at least the following twelve months. 

Cash Flows

As of March 31,June 30, 2022, we had cash, cash equivalents and restricted cash of $131,596.$125,647.

Net Cash Flows from Operating Activities: Net cash used in operating activities was $4,878$10,827 for the threesix months ended March 31,June 30, 2022, an increase of $470,$1,082, or 11%, compared to net cash used in operating activities for the threesix months ended March 31,June 30, 2021 of $4,408.$9,745. The increase in the 2022 period as compared to 2021 period resulted primarily from an increase in costs associated with clinical trial activity of $584$434 as well as inan increase in prepaid clinical expenses of $649. Offsetting the year over year increase is the Februaryexpenses. On June 27, 2022, refund of $1,000 attributable to a one-time fee to a leading research institutionwe paid $300 for the exclusive right to negotiate with a CAR-T Company for world-wide rightsus to two oncology R&D programs. acquire the company.

Net Cash Flows from Investing Activity: Net cash used in investing activities was $13 for the threesix months ended March 31,June 30, 2022, and no cash was used in investing activities for the threesix months ended March 31,June 30, 2021. The increase in cash used was due to purchases of office equipment during the first quarter of 2022.

Net Cash Flows from Financing Activities: There were no financing activities during the threesix months ended March 31,June 30, 2022. Net cash provided by financing activities was $102,428$112,624 for the threesix months ended March 31,June 30, 2021. During this period, we sold common stock and warrants for net proceeds of $69,668 and received proceeds of $32,760$42,956 from the exercise of warrants.

Funding Requirements

We expect to incur ongoing operating losses for the foreseeable future as we continue to develop our planned therapeutic programs including related clinical studies and other programs in the pipeline.  

If we are unable to raise additional capital when needed, however, we could be forced to curtail or cease operations. Our future capital uses and requirements will depend on the time and expenses needed to begin and continue clinical trials for our new drug development. As mentioned earlier,Additionally, the consummation of strategic transactions, such as the potential acquisition of the CAR-T Company, may also deplete our capital resources. Further, the ongoing COVID-19 outbreak could adversely impact the timing and enrollment of our clinical trials.

trials, which would increase our projected development costs and overall timelines.

Additional funding may not be available to us on acceptable terms or at all. The continued spread of COVID-19 and uncertain market conditions may limit our ability to access capital. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling debt securities, if convertible, further dilution to our existing stockholders would result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, collaboration agreements, debt financings or licensing arrangements.  

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

Recent Accounting Pronouncements

Refer to Note 3 to the Condensed Consolidated Financial Statements for recently issued accounting pronouncements not yet adopted.

Recently Adopted Accounting Pronouncements

Refer to Note 3 to the Condensed Consolidated Financial Statements for recently adopted accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          As of March 31, 2022, we had $131,486 cash and cash equivalents. Our cash equivalents are primarily held in a commercial money market account.  We do not believe that our cash and cash equivalents have significant risk of default or illiquidity. While we believe our cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our money market investments will not be subject to adverse changes in market value. In addition, we maintain substantially all of our cash and cash equivalents at one financial institution that are in excess of federally insured limits.

We engage CROs, contract manufacturers and other vendors on a global scale. We may be subject to fluctuations in foreign currency rates in connection with certain of our agreements with these parties. We do not participate in any foreign currency hedging activities, and we do not have any other derivative financial instruments. As of March 31, 2022, we have a cash account and a research and development rebate receivable denominated in Australian Dollars. Our research and development rebate receivable balance denominated in Australian dollars was 889 and our Australian dollar cash balance was 90 at March 31, 2022.  We did not recognize any significant exchange rate losses during the quarter ended March 31, 2022.

We currently have no product revenues and depend on funds raised through other sources. Our sources of funding include future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces affecting our stock price, prevailing interest rates, and on the state of the capital markets generally.Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of March 31,June 30, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the threesix months ended March 31,June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 

Litigation and Contingencies

We are subject to legal proceedings and claims that arise in the normal course of business. We believe these matters are either without merit or of a kind that should not have a material effect, individually or in the aggregate, on our financial position, results of operations or cash flows.

Purchasing shares of common stock is an investment in our securities and involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this quarterly report and our Annual Report, before purchasing our securities. If any of the following risks actually occur, our business, financial condition and results of operations would likely suffer. In that case, the market price of the common stock could decline, and you may lose part or all of your investment in our company. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations.

Risks Relating to our Business

We have only a limited operating history, and, as such, an investor cannot assess our profitability or performance based on past results.

Since December 2015, our business has focused on the development of novel therapeutics for the treatment of breast cancer and other breast conditions. In the first quarter of 2020, we began development of a novel potential therapy for hospitalized COVID-19 patients and in the second quarter 2020 we launched a second COVID-19 program called AT-301 nasal spray for patients who do not require hospitalization.hospitalization and in July 2022 we shifted the focus of our AT-H201 drug candidate to potentially treat lung injury caused by cancer treatments. However, this is a departure from our historical focus on breast cancer and we have no operating history as a company in developing treatments for infectious diseases.diseases or lung injury caused by cancer treatments. Because of our limited operating history, particularly in the area of pharmaceutical development, our revenue and income potential is uncertain and cannot be based on prior results. Any evaluation of our business and prospects must be considered in light of these factors and the risks and uncertainties often encountered by companies in the development stage. Some of these risks and uncertainties include our ability to:

We have not established sources of ongoing revenue to cover operating costs and allow us to continue as a going concern.

Although we have sufficient capital resources to fund our operations for at least the next 12 months based on our current business plan, our business plan may change and may require greater expenditures of capital than currently anticipated.anticipated, due to expenditures relating to strategic transactions. We have not yet established an ongoing source of revenue sufficient to cover operating costs and allow us to continue as a going concern. Our ability to continue as a going concern is dependent on obtaining adequate capital to fund operating losses until we become profitable. If we are unable to obtain adequate capital, we may be unable to develop and commercialize our product offerings or geographic reach and we could be forced to cease operations.

We will need to raise substantial additional capital in the future to fund our operations and we may be unable to raise such funds when needed and on acceptable terms.

For the threesix months ended March 31,June 30, 2022, we incurred a net loss of $4,786$11,457 and we had an accumulated deficit of $134,020$140,691 since inception. As of March 31,June 30, 2022, we had cash and cash equivalents of $131,486.$125,537. Because we have no current sources of revenue, we expect that we will need to raise capital again in the future to continue to fund our operations. When we elect to raise additional funds or when additional funds are required, we may raise such funds from time to time through public or private equity offerings, debt financings, corporate collaboration and licensing arrangements or other financing alternatives. These financing arrangements may not be available on acceptable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from developing our pharmaceutical candidates, pursuing acquisitions, invest in other companies including as a sponsor or investor in special purpose acquisition companies, licensing, development and commercialization efforts, and our ability to continue operations, generate revenues, and achieve or sustain profitability will be substantially harmed.  We currently have fewer than fourfive million shares of common stock authorized that are not reserved for specific purposes. Although we have proposed to our stockholders that at our 2022 annual stockholder meeting our charter be amended to add additional authorized shares for various potential purposes, including potential capital raising transactions, to date our stockholders have not approved such a proposal and may not approve such a proposal in the future. A lack of authorized shares may limit our ability to raise capital when needed.

If we raise additional funds by issuing equity securities, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any debt financing or additional equity, including securities convertible into or exercisable for equity securities, that we raise may contain terms, such as liquidation, conversion and other preferences, that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our technologies, future revenue streams or product candidates or to grant licenses on terms that may not be favorable to us. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, our business, operating results, financial condition and prospects could be materially and adversely affected, and we may be unable to continue our operations.

We may expend our capital resources in ways that you don't agree with or that don't produce stockholder value

We intend to use our capital resources to execute on our business plan, which may include acquiring or in-licensing additional programs and may also include the internal development of additional programs that may or may not be related to oncology and infectious diseases. We may also use our capital resources to invest directly or indirectly in business opportunities in healthcare or other industries including through purchases of equity in other companies. These investments may be in special purpose acquisition companies either as a sponsor or as an equity investor. Our business plan may evolve to require more capital resources than currently contemplated either because our existing programs progress more quickly or at a greater expense than currently anticipated or because we add additional programs. You may not agree with the ways in which we expend our capital resources and we may not produce stockholder value from the ways we deploy our capital.

We have a history of operating losses, and we expect to continue to incur losses in the future.

We have a limited operating history and have incurred net losses each year. Our net loss for the quartersix months ended March 31,June 30, 2022, was $4,786.$11,457. We will continue to incur further losses in connection with research and development costs for development of our programs, including ongoing and additional clinical studies.

Any products we may develop may never achieve significant commercial market acceptance.

We may not succeed in achieving commercial market acceptance of any of our products. In order to gain market acceptance for the drugs under development, we will need to demonstrate to physicians and other healthcare professionals the benefits of these therapies including the clinical and economic application for their particular practice. Many physicians and healthcare professionals may be hesitant to introduce new services or techniques into their practice for many reasons, including lack of time and resources, the learning curve associated with the adoption of such new services or techniques into already established procedures, and the uncertainty of the applicability or reliability of the results of a new product. In addition, the availability of full or even partial payment for our products, whether by third-party payors (e.g., insurance companies), or the patients themselves, will likely heavily influence physicians’ decisions to recommend or use our products.

The loss of the services of our Chief Executive Officer could adversely affect our business.

Our success is dependent in large part upon the ability to execute our business plan, manufacture our pharmaceutical drugs and attract and retain highly skilled professional personnel. In particular, due to the relatively early stage of our business, our future success is highly dependent on the services of Steven C. Quay, our Chief Executive Officer and founder, who provides much of the necessary experience to execute our business plan.

 Our acquisitions of, collaborations with, licenses with and investments in, other businesses, may not yield expected benefits and our inability to successfully integrate these transactions may negatively impact our business, financial condition, and results of operations.

We anticipate that we will make acquisitions of, collaborations with, licenses with or investments in businesses in the future. We may not realize the anticipated benefits, or any benefits, from these transactions. If we fail to properly evaluate, complete and execute transactions, our business may be seriously harmed and the value of your investment may decline. For us to realize the benefits of future transactions, we must successfully integrate the acquired businesses with ours. Some of the challenges to successful integration include:

For example, we recently announced that we are negotiating for the acquisition of a CAR-T company. That transaction may not be completed and even if completed it may not be successful which would adversely affect our business. Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and other transactions could cause us to fail to realize the anticipated benefits of such acquisitions and transactions and negatively impact our business, financial condition, and results of operations.

We may experience difficulty in locating, attracting, and retaining experienced and qualified personnel, which could adversely affect our business.

We will need to attract, retain, and motivate experienced clinical development and other personnel, particularly in the greater Seattle area as we expand our pharmaceutical development activities. These employees may not be available in this geographic region. In addition, competition for these employees is intense and recruiting and retaining skilled employees is difficult, particularly for a development-stage organization such as ours. If we are unable to attract and retain qualified personnel, our development activities may be adversely affected. Even if we are successful in identifying and attracting qualified employees, recent market changes have made employment costs substantially higher. As a result, our operating expenses may go up in the current market environment.

Compounds and methods that appear promising in research and development may fail to reach later stages of development for a number of reasons, including, among others, that clinical trials may take longer to complete than expected or may not be completed at all, and interim, top-line or preliminary clinical trial data reports may ultimately differ from actual results once data are more fully evaluated.

Successful development of anti-cancer and other pharmaceutical products is highly uncertain and obtaining regulatory approval to market drugs to treat cancer, other breast conditions and infectious diseases is expensive, difficult, and speculative. Compounds that appear promising in research and development may fail to reach later stages of development for several reasons, including, but not limited to:

In addition, from time to time we expect to report interim, top-line or “preliminary” data for clinical trials, including for example the results reported in 2021 for our neoadjuvant or “window of opportunity” Phase 2 study of Endoxifen in Australia. Such data are based on a preliminary analysis of then-available efficacy and safety data, and such findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Interim, top-line or preliminary data are based on important assumptions, estimations, calculations and information then available to us to the extent we have had, at the time of such reporting, an opportunity to fully and carefully evaluate such information in light of all surrounding facts, circumstances, recommendations and analyses. As a result, interim, top-line or “preliminary” results may differ from future results, or different conclusions or considerations may qualify such results once existing data have been more fully evaluated. In addition, third parties, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular compound and our business in general.

For example, some participants in the Phase 2 MBD study we conducted in Stockholm, Sweden despite showing reduced MBD as a result of using our topical Endoxifen exited the study before completing a full six months of dosing because of skin irritation and rashes.

If the development of our products is delayed or fails, or if top-line or preliminary clinical trial data reported differ from actual results, our development costs may increase and the ability to commercialize our products may be harmed, which could harm our business, financial condition, operating results or prospects.

We may not obtain or maintain the regulatory approvals required to develop or commercialize some or all of our products.

We are subject to rigorous and extensive regulation by the FDA in the U.S. and by comparable agencies in other jurisdictions, including the Europe Medicines Agency (EMA) in the European Union (E.U.) and the Therapeutic Goods Administration (TGA) in Australia.

Our product candidates are currently in research or development, and we have not received marketing approval for our products. Our products may not be marketed in the U.S. until they have been approved by the FDA and may not be marketed in other jurisdictions until they have received approval from the appropriate foreign regulatory agencies. Each product candidate requires significant research, development and preclinicalpre-clinical testing and extensive clinical investigation before submission of any regulatory application for marketing approval. As a result, the regulatory pathway for these products may be more complex and obtaining regulatory approvals may be more difficult.

Obtaining regulatory approval requires substantial time, effort and financial resources, and we may not be able to obtain approval of any of our products on a timely basis, or at all. The number, size, design, and focus of preclinicalpre-clinical and clinical trials that will be required for approval by the FDA, the EMA, or any other foreign regulatory agency varies depending on the compound, the disease or condition that the products are designed to address and the regulations applicable to any particular products. Preclinicalpre-clinical and clinical data can be interpreted in different ways, which could delay, limit or preclude regulatory approval. The FDA, the EMA, and other foreign regulatory agencies can delay, limit, or deny approval of a product for many reasons, including, but not limited to:

Regulatory agencies may also fail to grant approvals to commence studies for any number of reasons. For example, in May 2020, the FDA asked for additional pre-clinical data and other information for a proposed study of AT-H201. If we cannot provide the requested data and information the FDA may not authorize us to commence this study.

Another example is that Hunan Research Ethics Committee (HREC) provided approval to commence the study but has not approved the final part of the study involving COVID-19 infected patients because it is unclear if that part of the study will be conducted at the site in Australia. The addition of new sites will require additional approvals and we will have to conduct this part of the study where COVID-19 infections allow.

If our products are not approved at all or quickly enough to provide net revenues to defray our operating expenses, our business, financial condition, operating results and prospects could be harmed.

We are developing our products, including AT-H201 to treat COVID-19lung injury caused by cancer treatments and Endoxifen for breast cancer, for patients who are severely ill, and patient deaths that occur in our clinical trials could negatively impact our business even if such deaths are not shown to be related to our drugs.

We intend to enroll patients in studies of our drug candidates for patients who may die while enrolled in our studies.  For example, we are developing AT-H201for COVID patients who may be severely ill, including patients on ventilators. COVID patients on ventilators are very sicklung injury caused by cancer treatments, AT-301 for people with COVID-19 and many do not recover either because of COVID-19 or other illnesses. Patients in our Endoxifen studies may havefor breast cancer which could cause death.cancer. As a result, it is likely that we will observe severe adverse outcomes of some patients in our clinical trials for our drugs, including patient death. These adverse outcomes, even if unrelated to our drugs, could expose us to lawsuits and liabilities and could diminish our ability to obtain regulatory approval and/or achieve commercial acceptance for the related drug and our business could be materially harmed. 

We are dependent on third-party service providers for a number of critical operational activities including, in particular, for the manufacture and testing of our products and associated supply chain operations, as well as for clinical trial activities. Any failure or delay in these undertakings by third parties could harm our business.

Our business is dependent on the performance by third parties of their responsibilities under contractual relationships. In particular, we heavily rely on third parties for the manufacture and testing of our products. We do not have internal analytical laboratory or manufacturing facilities to allow the testing or production of products in compliance with Good Manufacturing Practices (cGMP). As a result, we rely on third parties to supply us in a timely manner with manufactured product candidates. We may not be able to adequately manage and oversee the manufacturers we choose, they may not perform as agreed or they may terminate their agreements with us. In particular, we depend on third-party manufacturers to conduct their operations in compliance with Good Laboratory Practices (GLP) or similar standards imposed by the U.S. and/or applicable foreign regulatory authorities, including the FDA and EMA. Any of these regulatory authorities may take action against a contract manufacturer who violates cGMP. Failure of our manufacturers to comply with FDA, EMA or other applicable regulations may cause us to curtail or stop the manufacture of such products until we obtain regulatory compliance.

We may not be able to obtain sufficient quantities of our products if we are unable to secure manufacturers when needed, or if our designated manufacturers do not have the capacity or otherwise fail to manufacture compounds according to our schedule and specifications or fail to comply with cGMP regulations. Furthermore, in order to ultimately obtain and maintain applicable regulatory approvals, any manufacturers we utilize are required to consistently produce the respective products in commercial quantities and of specified quality or execute fill-finish services on a repeated basis and document their ability to do so, which is referred to as process validation. In order to obtain and maintain regulatory approval of a compound, the applicable regulatory authority must consider the result of the applicable process validation to be satisfactory and must otherwise approve of the manufacturing process. Even if our compound manufacturing processes obtain regulatory approval and sufficient supply is available to complete clinical trials necessary for regulatory approval, there are no guarantees we will be able to supply the quantities necessary to effect a commercial launch of the applicable drug, or once launched, to satisfy ongoing demand. Any product shortage could also impair our ability to deliver contractually required supply quantities to applicable collaborators, as well as to complete any additional planned clinical trials.

We also rely on third-party service providers for certain warehousing and transportation. With regard to the distribution of our drugs, we depend on third-party distributors to act in accordance with Good Distribution Practice (GDP), and the distribution process and facilities are subject to continuing regulation by applicable regulatory authorities with respect to the distribution and storage of products.

In addition, we depend on medical institutions and CROs (together with their respective agents) to conduct clinical trials and associated activities in compliance with Good Clinical Practices (GCP) and data privacy standards such as defined under the Health Insurance Portability and Accountability Act (HIPAA), California Consumer Privacy Acts (CCPA), and General Data Protection Regulation (GDPR) and in accordance with our timelines, expectations and requirements. We are substantially dependent on the organizations conducting the clinical trials of our proprietary Endoxifen. To the extent any such third parties are delayed in achieving or fail to meet our clinical trial enrollment expectations, fail to conduct our trials in accordance with GCP, patient and data privacy standards such as HIPAA or study protocol or otherwise take actions outside of our control or without our consent, our business may be harmed. Furthermore, we conduct clinical trials in foreign countries, subjecting us to additional risks and challenges, including, patient and data privacy standards such as GDPR and in particular, as a result of the engagement of foreign medical institutions and foreign CROs, who may be less experienced with regard to regulatory matters applicable to us and may have different standards of medical care.

With regard to certain of the foregoing clinical trial operations and stages in the manufacturing and distribution chain of our compounds, we rely on vendors. In most cases we use a primary vendor and have identified, in some cases, secondary vendors. In particular, our current business structure contemplates, at least in the foreseeable future, use of a primary commercial supplier for Endoxifen drug substance. The use of primary vendors for core operational activities, such as, manufacturing, the resulting lack of diversification, expose us to the risk of a material interruption in service related to these primary, outside vendors. As a result, our exposure to this concentration risk could harm our business.

 Although we monitor the compliance of our third-party service providers performing the aforementioned services, we cannot be certain that such service providers will consistently comply with applicable regulatory requirements or that they will otherwise timely satisfy their obligations to us. Any such failure and/or any failure by us to monitor their services or to plan for and manage our short- and long-term requirements underlying such services could result in shortage of the compound, delays in or cessation of clinical trials, failure to obtain or revocation of product approvals or authorizations, product recalls, withdrawal or seizure of  products, suspension of an applicable wholesale distribution authorization, and/or distribution of products, operating restrictions, injunctions, suspension of licenses, other administrative or judicial sanctions (including civil penalties and/or criminal prosecution), and/or unanticipated related expenditures to resolve shortcomings.

Such consequences could have a significant impact on our business, financial condition, operating results, or prospects. 

We may encounter delays in our clinical trials or may not be able to conduct our trials in a timely manner.

Clinical trials are expensive and subject to regulatory approvals. Potential trial delays may arise from, but are not limited to: