Small-Cap Research. Atossa Genetics (ATOS-NASDAQ) ATOS: Zacks Company Report OUTLOOK

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1 Small-Cap Research March 17, 2017 Grant Zeng, CFA scr.zacks.com 10 S. Riverside Plaza, Chicago, IL Atossa Genetics (ATOS-NASDAQ) ATOS: Zacks Company Report ATOS: A pure play biopharma in the women s health space with two clinical programs. Current Price (03/17/17) $1.50 Valuation $8.00 OUTLOOK Atossa becomes a pure play biopharma company with a focus on breast care post the sale of its diagnostics business. The sale of its lab service subsidiary boosts the company s balance sheet, enhances its revenue potential. The company will focus its efforts and resources on the development of its therapeutic candidates. Current market value for Atossa shares is attractive. SUMMARY DATA 52-Week High $ Week Low $1.31 One-Year Return (%) Beta 1.40 Average Daily Volume (sh) 34,211 Shares Outstanding (mil) 4 Market Capitalization ($mil) $6 Short Interest Ratio (days) Institutional Ownership (%) Insider Ownership (%) Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2012 Estimate P/E using 2013 Estimate Zacks Rank Risk Level Type of Stock Industry Zacks Rank in Industry ZACKS ESTIMATES Med Instruments Revenue (in millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) A 2.69 A 0.77 A 0.19 A 5.52 A A 0.00 A 0.00 A 0.00 A 0.00 A E E Earnings per Share (EPS is operating earnings before non recurring items) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) $2.01 A -$1.70 A -$2.25 A -$2.30 A -$8.32 A $1.11 A -$0.75 A -$0.56 A -$1.32 A -$3.57 A $2.54 E $2.09 E Zacks Projected EPS Growth Rate - Next 5 Years % Copyright 2017, Zacks Investment Research. All Rights Reserved.

2 WHAT S NEW Update on Phase II Study of Fulvestrant On Jan 9, 2017, Atossa announced that it is transferring the site of its Phase II study of fulvestrant administered with its patented microcatheters in patients with ductal carcinoma in situ or breast cancer who are scheduled for lumpectomy or mastectomy. The study was initiated at Columbia University Medical Center Breast Cancer Programs (New York) and is now being transferred to Montefiore Medical Center in New York. This move comes about as the principal investigator, Dr. Sheldon M. Feldman, M.D., has relocated to Montefiore and is now Chief, Division of Breast Surgery & Breast Surgical Oncology, Director, Breast Cancer Services, and Professor, Department of Surgery, at the Montefiore Medical Center, The University Hospital for the Albert Einstein College of Medicine, Montefiore Einstein Center for Cancer Care. Montefiore Health System consists of eleven hospitals; a primary and specialty care network of more than 180 locations across Westchester County, the lower Hudson Valley and the Bronx; an extended care facility; the Montefiore School of Nursing, and the Albert Einstein College of Medicine. The Phase II Trial of Fulvestrant for the Treatment of DCIS On March 2, 2016, Atossa Genetics announced that the "007" trial, a Phase II study in women with ductal carcinoma in situ (DCIS) or invasive breast cancer slated for mastectomy, is open for enrollment. This study will assess the safety and tolerability of fulvestrant when delivered directly into breast milk ducts of these patients. This Phase II clinical trial is an open-label, non-randomized pharmacokinetic study (PK) study of the distribution of fulvestrant in women scheduled for mastectomy. The first 6 study participants will receive the standard intramuscular fulvestrant dose of 500 mg to establish the reference drug distribution. The subsequent 24 participants will receive fulvestrant by intraductal instillation utilizing Atossa's patented investigational microcatheter device. The total dose administered in this manner will not exceed 500 mg. The primary endpoint of the clinical trial is to assess the safety and tolerability of intraductal administration of fulvestrant in women with DCIS or Stage 1 or 2 invasive ductal carcinoma prior to mastectomy. The secondary objective of the study is to determine if there are changes in the expression of Ki67 as well as estrogen and progesterone receptors between a pre-fulvestrant biopsy and post-fulvestrant surgical specimen. Mammography before and after drug administration in both groups will be performed to determine the effect of fulvestrant on breast density of the participant. Atossa owns one issued patent and several pending applications directed to the treatment of breast conditions, including cancer, by the intraductal administration of fulvestrant and other pharmaceuticals. According to the American Cancer Society, over 292,000 American women were diagnosed with breast cancer (both local and invasive) in 2015 and over 40,000 women died in 2015 due to their disease. Providing drug directly into the ducts targeting the site of the localized cancerous lesions could reduce the need for systemic anti-cancer drugs, and potentially reduce or eliminate the systemic side effects of the drugs and morbidity in such patients and ultimately improve patient compliance. Atossa Initiates Additional Drug Development Program Zacks Investment Research Page 2 scr.zacks.com

3 On June 7, 2016, Atossa announced that it has initiated a new drug development program with oral endoxifen. Endoxifen is an active metabolite of tamoxifen, an FDA approved drug for breast cancer patients to prevent recurrence as well as new breast cancer. Tamoxifen is a hormone therapy that has been used for more than 40 years to reduce the risk of breast cancer and to prevent recurrence. However, research has demonstrated that patients with very low levels of a critical enzyme called CYP2D6 and those with low endoxifen levels have a higher risk of recurrence or progression when treated with tamoxifen. It is estimated that over one million people take tamoxifen annually in the United States and that up to 50% of those patients are refractory. Atossa has filed patent applications for endoxifen and contracted for the initial drug supply. The company has identified its initial indication -- breast cancer patients who are refractory to tamoxifen thereby getting little or no benefit from the drug. Atossa has received valuable input from the Medicines and Healthcare Products Regulatory Agency (MHRA) from UK. Written guidance from the FDA is expected very soon. Atossa will pursue strategic initiatives that include completion of the product development to support an IND filing to the FDA, which is anticipated to occur later this year. Update on Year End Financials As of December 31, 2016, Atossa had $3.0 million in cash. In early September 2016, Atossa closed an underwritten public offering of 1.15 million shares of its common stock at a price of $2.50 per share. The gross proceeds were approximately $2.875 million. In late May 2016, Atossa entered into a $10 million stock purchase agreement with Aspire Capital Fund, LLC. Under terms of the agreement, Aspire has committed to purchase up to $10 million of Atossa's common stock over 30 months, based on prevailing market prices over a period preceding each sale. Key aspects of the agreement with Aspire Capital include: Atossa will control the timing and amount of any sales of common stock to Aspire Capital and will know the sales price before directing Aspire Capital to purchase shares; Aspire Capital has no right to require any sales by Atossa, but is obligated to make purchases as Atossa directs, in accordance with the terms of the purchase agreement; Aspire Capital has agreed to a long-only position; There are no limitations on use of proceeds, financial covenants, restrictions on future financings, rights of first refusal, participation rights, penalties or liquidated damages in the purchase agreement; The purchase agreement may be terminated by Atossa at any time, at its discretion, without any additional cost or penalty; and Atossa has issued shares of its common stock to Aspire Capital as a commitment fee in connection with entering into the purchase agreement. Atossa will use the net proceeds from the sales of common stock for general corporate purposes and working capital requirements. Atossa also entered into a registration rights agreement with Aspire Capital in connection with its entry into the purchase agreement that requires the Company to file a registration statement regarding the shares sold to Aspire Capital. We see these terms are favorable for Atossa. With this new secured financing commitment, as well as the sale of its diagnostics business, we think Atossa is in a better position to focus on its growth plan and create long term shareholder value. Zacks Investment Research Page 3 scr.zacks.com

4 Valuation is Attractive We think current valuation for Atossa shares is very attractive. Our fair valuation for Atossa shares is $8.00. With the sale of its diagnostics business, Atossa is becoming a pure play biopharma company with a focus on women s health. Based on Atossa s fundamentals, we think the Company s shares are undervalued. Currently, Atossa shares are trading at about $1.5 per share which values the Company at $5.7 million in terms of market cap based on 3.8 million shares outstanding. We think this is a deep discount compared to its peers. For a typical development stage small cap biopharma company, market value usually ranges from $50 million to $2 billion depending on how advanced its pipeline and the market potential of its candidates. Currently, Atossa has one Phase II clinical candidate with great market potential. The company just announced the initiation of a new clinical program Endoxifen. The company also receives monthly payment from its sold lab service subsidiary, which greatly enhances its balance sheet. Our target price values Atossa at $30 million in market cap, which we think is still very conservative. When the company continues to advance its two clinical programs, value will be generated for its shareholders. Zacks Investment Research Page 4 scr.zacks.com

5 PROJECTED INCOME STATEMENT 2015A 2016A $ in million except per share data Q1 Q2 Q3 Q4 FYA Q1 Q2 Q3 Q4 FYE FYE FYE FYE FYE Laboratory Services Royalty $1.87 $2.69 $0.77 $0.18 $5.52 $0.00 $0.00 $0.00 $0.00 $0.00 $0.50 $1.00 $2.50 $5.00 Product/Medical Device sales $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $5.00 $7.50 $12.00 Total Revenues $1.87 $2.69 $0.77 $0.19 $5.52 $0.00 $0.00 $0.00 $0.00 $0.00 $0.50 $6.00 $10.00 $17.00 YOY Growth % % % -62.1% 950.4% % 66.7% 70.0% CoGS Gross Income $0.67 $0.84 $0.46 ($0.11) $1.85 $0.00 $0.00 $0.00 $0.00 $0.00 $0.43 $5.10 $8.50 $14.45 Gross Margin 35.5% 31.2% 59.4% % % 85.0% 85.0% 85.0% SG&A $3.15 $3.52 $3.76 $2.81 $13.24 $2.18 $1.55 $1.47 $1.27 $6.48 $7.50 $12.50 $17.50 $20.00 % SG&A 168.3% 130.8% 486.4% % % 208.3% 175.0% 117.6% R&D $0.80 $0.51 $1.09 $0.97 $3.37 $0.15 $0.17 $0.09 $0.37 $0.77 $1.50 $3.00 $5.00 $6.00 % Other Operating Income ($3.3) ($3.2) ($4.4) ($3.9) ($14.8) ($2.3) ($1.7) ($1.6) ($1.6) ($7.2) ($8.6) ($10.4) ($14.0) ($11.6) Operating Margin 2017E 2018E 2019E 2020E % % % % Other Net ($0.1) $0.0 $0.1 ($1.1) ($1.0) $0.0 $0.0 $1.8 ($0.9) $0.9 ($0.1) ($0.1) ($0.1) ($0.1) Pre-Tax Income ($3.3) ($3.1) ($4.3) ($5.0) ($15.8) ($2.3) ($1.7) $0.2 ($2.5) ($6.4) ($8.6) ($10.5) ($14.1) ($11.6) Income taxes(benefit) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Tax Rate Reported Net Income ($3.3) ($3.1) ($4.3) ($5.0) ($15.8) ($2.3) ($1.7) $0.2 ($2.5) ($6.4) ($8.6) ($10.5) ($14.1) ($11.6) YOY Growth % 34.4% -17.4% Net Margin Diluted Shares Out Reported EPS ($2.01) ($1.70) ($2.25) ($2.30) ($8.32) ($1.11) ($0.75) $0.07 ($1.32) ($2.80) ($2.54) ($2.09) ($2.16) ($1.45) One time charge $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 ($1.76) $0.00 ($1.76) $0.00 $0.00 $0.00 $0.00 Non-GAAP Net Income ($3.3) ($3.1) ($4.3) ($5.0) ($15.8) ($2.3) ($1.7) ($1.6) ($2.5) ($8.1) ($8.6) ($10.5) ($14.1) ($11.6) Non-GAAP EPS ($2.01) ($1.70) ($2.25) ($2.30) ($8.32) ($1.11) ($0.75) ($0.56) ($1.32) ($3.57) ($2.54) ($2.09) ($2.16) ($1.45) Source: Company filing and Zacks estimates Copyright 2017, Zacks Investment Research. All Rights Reserved.

6 HISTORICAL STOCK PRICE DISCLOSURES The following disclosures relate to relationships between Zacks Small-Cap Research ( Zacks SCR ), a division of Zacks Investment Research ( ZIR ), and the issuers covered by the Zacks SCR Analysts in the Small-Cap Universe. ANALYST DISCLOSURES I, Grant Zeng, CFA, hereby certify that the view expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the recommendations or views expressed in this research report. I believe the information used for the creation of this report has been obtained from sources I considered to be reliable, but I can neither guarantee nor represent the completeness or accuracy of the information herewith. Such information and the opinions expressed are subject to change without notice. INVESMENT BANKING, REFERRALS, AND FEES FOR SERVICE Zacks SCR does not provide nor has received compensation for investment banking services on the securities covered in this report. Zacks SCR does not expect to receive compensation for investment banking services on the Small-Cap Universe. Zacks SCR may seek to provide referrals for a fee to investment banks. Zacks & Co., a separate legal entity from ZIR, is, among others, one of these investment banks. Referrals may include securities and issuers noted in this report. Zacks & Co. may have paid referral fees to Zacks SCR related to some of the securities and issuers noted in this report. From time to time, Zacks SCR pays investment banks, including Zacks & Co., a referral fee for research coverage. Zacks SCR has received compensation for non-investment banking services on the Small-Cap Universe, and expects to receive additional compensation for non-investment banking services on the Small-Cap Universe, paid by issuers of securities covered by Zacks SCR Analysts. Non-investment banking services include investor relations services and software, financial database analysis, advertising services, brokerage services, advisory services, equity research, investment management, non-deal road shows, and attendance fees for conferences sponsored or co-sponsored by Zacks SCR. The fees for these services vary on a per client basis and are subject to the number of services contracted. Fees typically range between ten thousand and fifty thousand USD per annum. POLICY DISCLOSURES Copyright 2017, Zacks Investment Research. All Rights Reserved.

7 Zacks SCR Analysts are restricted from holding or trading securities placed on the ZIR, SCR, or Zacks & Co. restricted list, which may include issuers in the Small-Cap Universe. ZIR and Zacks SCR do not make a market in any security nor do they act as dealers in securities. Each Zacks SCR Analyst has full discretion on the rating and price target based on his or her own due diligence. Analysts are paid in part based on the overall profitability of Zacks SCR. Such profitability is derived from a variety of sources and includes payments received from issuers of securities covered by Zacks SCR for services described above. No part of analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in any report or article. ADDITIONAL INFORMATION Additional information is available upon request. Zacks SCR reports are based on data obtained from sources we believe to be reliable, but are not guaranteed as to be accurate nor do we purport to be complete. Because of individual objectives, this report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed by Zacks SCR Analysts are subject to change without notice. Reports are not to be construed as an offer or solicitation of an offer to buy or sell the securities herein mentioned. ZACKS RATING & RECOMMENDATION ZIR uses the following rating system for the 1139 companies whose securities it covers, including securities covered by Zacks SCR: Buy/Outperform: The analyst expects that the subject company will outperform the broader U.S. equity market over the next one to two quarters. Hold/Neutral: The analyst expects that the company will perform in line with the broader U.S. equity market over the next one to two quarters. Sell/Underperform: The analyst expects the company will underperform the broader U.S. Equity market over the next one to two quarters. The current distribution is as follows: Buy/Outperform- 15.9%, Hold/Neutral- 77.8%, Sell/Underperform business day immediately prior to this publication. 6.0%. Data is as of midnight on the Zacks Investment Research Page 7 scr.zacks.com