Note 3 - Summary of Accounting Policies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE 3: SUMMARY OF ACCOUNTING POLICIES

Basis of Presentation

   The accompanying consolidated financial statements have been prepared pursuant to the rules of the Securities and Exchange Commission (SEC) and in accordance with the accounting principles generally accepted in the U.S. (GAAP) The accompanying consolidated financial statements include the financial statements of Atossa Therapeutics, Inc. and its wholly-owned subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation. All amounts have been presented in thousands, except for par value and per share data. 

Reclassification

Interest income has been reclassified from prior period amounts to conform to the current year presentation.

Use of Estimates

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

Cash and Cash Equivalents

Cash and equivalents include unrestricted cash and all highly liquid instruments with original maturities of three months or less at date of purchase.

Investments in Equity Securities

The investment in non-marketable securities is carried at cost less any impairment in accordance with Accounting Standards Codification ASC 321 - Equity. This investment does not have a readily determinable fair value, so the Company has elected to measure the investment at cost. At each reporting period, the Company will perform an assessment to determine if it still qualifies for this measurement alternative. The Company considered qualitative impairment factors in determining if there were any signs of impairment. Specifically, the Company considered the adverse change in the general market condition of the industry in which Dynamic Cell Therapies, Inc. (DCT) operates and concerns about the investee’s ability to continue as a going concern, due to negative cash flows from operations. Based on these impairment indicators, the Company performed a fair value measurement as of December 31, 2022. 

The resulting valuation concluded that the investment was not impaired, thus, no impairment has been recorded. The assumptions and estimates used to estimate the fair value of the investment include the following information from DCT:

● Unaudited financial statements;

● Projected technological developments of DCT;

● Current fundraising transactions;

● Current ability of DCT to raise additional financing when needed;

● Changes in the economic environment which may have a material impact on the operating results of DCT, and;

● Timing of a deemed liquidation event occurring.

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. Please also refer to Note 9. 

Research and Development Expenses

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 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.

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 price of the Company's common stock, the expected life of the options, an expectation regarding future dividends on the Company’s common stock, and estimation of an appropriate risk-free interest rate. The Company’s expected common stock price volatility assumption is based upon the historical volatility of the Company's 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 zero 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 is based upon prevailing short-term interest rates over the expected lives of the options.

Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered or settled. Realization of deferred tax assets is dependent upon future taxable income. A valuation allowance is recognized if it is more likely than not that some portion or all of a deferred tax asset will not be realized based on the weight of available evidence, including expected future earnings. The Company recognizes an uncertain tax position in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The full impact of any change in recognition or measurement is reflected in the period in which such change occurs. The Company elects to accrue any interest or penalties related to income taxes as part of its income tax expense.

Leases

 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. The Company does not record right-of-use assets or operating lease liabilities on leases with initial terms of 12 months or less (short-term). All Company leases are short-term in duration; therefore, no right of use assets or lease liabilities are recorded as of December 31, 2022 or 2021.

Foreign Currency Translation and Transactions

The majority of the Company's operations occur in entities that have the U.S. dollar as their functional currency. The one non-U.S. dollar denominated functional currency subsidiary has assets and liabilities translated into U.S. dollars at rates of exchange in effect at the end of the year. Expense amounts are translated using the average exchange rates for the period. Net unrealized gains and losses resulting from foreign currency translation are recorded in Other expense, net in the consolidated statements of operations. The Company had realized losses on foreign currency exchange during the years ended December 31, 2022 and 2021 of $122 and $72, respectively, which are included in Other expense, net in the consolidated statements of operations. 

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 year ended December 31, 2022, the standard did not have an impact on the consolidated financial statements. 

On January 1, 2022, the Company adopted ASU No. 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 tax rebate receivable is detailed in Note 7.