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 AND COMPREHENSIVE LOSS

(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)

(amounts in thousands, except for per share amounts)

NOTE 1: NATURE OF OPERATIONS

Atossa Therapeutics, Inc. (the Company)"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 the development of its pharmaceuticals for the treatment of breast cancer and other breast conditions and adjunctive treatments for lung injury caused by cancer treatments, and the novel coronavirus (COVID-19).treatments. The Company’sCompany'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,(Z)-Endoxifen, AT-H201 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. We do not yet know the full extent of potential COVID-19-related delays or other impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole, however, as of November 7, 2022, 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(Z)-Endoxifen and AT-H201. 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 sixnine months ended JuneSeptember 30, 2022, the Company recorded a net loss of $11,45719,469 and used $10,827$16,237 of cash in operating activities. As of JuneSeptember 30, 2022, the Company had $125,537$117,367 in cash and cash equivalents and working capital of $129,629.$120,527. 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 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 sixnine months ended June September 30,2022,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 1one 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. AlsoPlease also refer to Note 8.9. 

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 0zero 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 three or sixnine months ended June September 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 (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 6.7.

NOTE 4: LETTER AGREEMENTS

On June 27, 2022 the Company entered into a Letter Agreement (the "June 27th 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 required that up until July 1, 2022, the CAR-T Company would negotiate exclusively with the Company for the Company to acquire the CAR-T Company. The Company paid $300 for the exclusive right to negotiate with the CAR-T Company. As of June 30, 2022 the Company recorded the $300 in Research and development in the condensed consolidated statements of operations. 

On July 1, 2022, the Company entered into a letter agreement (the “Letter Agreement”) which replaced the June 27th Letter Agreement. The Letter Agreement required that up until November 1, 2022, the CAR-T Company would (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 to the CAR-T Company in accordance with the Letter Agreement. If, by November 1, 2022, a definitive agreement was not reached for the Company to acquire the CAR-T Company and a specified material adverse event had not occurred, then the Company would pay an additional $2,000 for a preferred stock equity interest of 19.99% of total equity in the CAR-T Company. As of September 30, 2022, the Company recorded the $2,700 as a deposit on investment in equity securities in the condensed consolidated balance sheet. Please see Note 17 for information regarding resolution of developments under the Letter Agreement subsequent to quarter end.

NOTE 5:RESTRICTED CASH

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

NOTE 5:6: PREPAID EXPENSES

Prepaid expenses consisted of the following:

NOTE 6:7: RESEARCH AND DEVELOPMENT REBATE RECEIVABLE

 On May 23, 2017, Atossa formed a wholly-ownedwholly owned subsidiary in Australia called Atossa Genetics AUS Pty Ltd. The purpose of this subsidiary is to perform R&D activities including some of 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 could 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 from the Australian government.

During the three and sixnine months ended June September 30,2022,the Company incurred qualified R&D expenses in Australia of $607$486 and $930,$1,415, respectively. Qualified R&D expenses incurred by the Company were $275$364 and $546$909 during the three and sixnine months ended June September 30,2021,respectively. During the sixnine months ended June September 30,2022and June 30, 2021, the Company collected R&D cash rebates of $629and$0, respectively. At$1,011. There were no collections of cash rebates during the June9 months endedSeptember 30, 2021. On September 30,2022and December 31, 2021, we had a total research and development rebate receivable of $900$610 and $1,072, respectively. We 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 Developmentdevelopment expense line item on the Condensed Consolidated Statementscondensed consolidated statements of Operationsoperations by $264$263 and $404$763 for the three and sixnine months ended June September 30,2022,and $109$177 and $216$448 for the same periods in 2021, respectively.

The Company had realized losses on foreign currency exchange, related to the research and development rebate receivable balance, during the three and sixnine months ended June September 30,2022of $85$0 and $114, respectively, and $33$35 and $38$73 for the same periods in 2021, respectively. Foreign currency exchange gains and losses are included in Other expense,income (expense), net in the Condensed Consolidated Statementscondensed consolidated statements of Operations. 

operations. 

NOTE 7:8: PAYROLL LIABILITIES

Payroll liabilities consisted of the following:

NOTE 8:9: 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 principallyprimarily 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 sixnine months ended JuneSeptember 30, 2021:

NOTE 9:10: 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.share. No shares of Series A junior participating preferred stock, no shares of Series A convertible preferred stock and no shares of Series C convertible preferred stock arewere outstanding as of JuneSeptember 30, 2022 and 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 iswas $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 arewere $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 June September 30,2022,warrants to purchase shares of common stock were outstanding including:included: 

Warrant Activity

There were no warrant exercises during the three and sixnine months ended JuneSeptember 30, 2022. During the three and sixnine months ended JuneSeptember 30, 2021, the Company received $10,196$862 and $42,956$43,818 respectively, from the exercises of warrants. The warrant exercises resulted in the reduction of 5,091296 and 37,15437,452 warrants, respectively, for the three and sixnine months ended June September 30,2021and the issuance of 5,091296 and 37,15437,452 shares of common stock for the same periods. 

Conversion of Convertible Preferred Stock

During the three and sixnine months ended June September 30,2022,there were no conversions of Series B convertible preferred stock. During the three and sixnine months ended JuneSeptember 30, 2021, certain holders of the Series B convertible preferred stock exercised their conversion option and converted an aggregate of 0.0330.003 and 0.0340.037 shares, respectively, into 91 and 910 shares of the Company's common stock. 

NOTE 10:11: 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 entitle 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 three and sixnine months ended June September 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 11:12: 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 JuneSeptember 30, 2022 and December 31, 2021, due to the Company’s continuing operating losses.

NOTE 12:13: CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentration of credit risk consist principallyprimarily 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 JuneSeptember 30, 2022 and December 31, 2021, the Company had $125,332$116,768 and $136,185, respectively, including restricted cash, in excess of the FDIC insured limit, respectively.limit.

NOTE 13:14: COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company evaluates all contractual agreements at inception to determine if they containshould be classified as 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 as 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 paywith a monthly rent of $1 for a term of 12 months. The Company had lease expenseexpenses under short term leases during the three and sixnine months ended JuneSeptember 30, 2022, of $2$3 and $8,$12, respectively. Lease expenseexpenses under short term leases during the three and sixnine months ended June September 30,2021were $7 and $12,$19, respectively. As of JuneSeptember 30, 2022 and December 31, 2021, the right of use asset and lease liability balances were $0.$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 14:15: 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 8,0868,256 options available for grant under the 2020 Plan as of June September 30,2022.

The Company granted options to purchase 1,12830 and 3,8493,879 shares of common stock, respectively, to employees during the three and sixnine months ended June September 30,2022.For the three and sixnine months ended June September 30,2021,the Company granted 3,644175 and 3,819 options, respectively, to employees to purchase shares of common stock. The weighted average grant date fair value of options granted during the three and sixnine months ended June September 30,2022,was $0.80$0.92 and $0.99, respectively, and $2.55$2.74 and $2.55$2.56 for the same periods in 2021, respectively. There were 0no options exercised during the three and sixnine months ended JuneSeptember 30, 2022. There were 699 options exercised during the 30,2022three and 2021.nine months ended September 30, 2021, at an average exercise price of $2.46.