Tonix Pharmaceuticals Holding Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Par Value and Share Amounts) March 31, December 31, 2021 2020 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 164,214 $ 77,068 Prepaid expenses and other 8,951 10,921 Total current assets 173,165 87,989 Property and equipment, net 9,070 8,571 Right of use assets, net 921 1,258 Security deposit 5 5 Restricted cash 240 240 Intangible asset 120 120 Total assets $ 183,521 $ 98,183 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,859 $ 4,598 Accrued expenses and other current liabilities 2,783 4,626 Lease liability, current 386 595 Total current liabilities 6,028 9,819 Lease liability, net of current 577 716 Total liabilities 6,605 10,535 Commitments (See Note 15) Stockholders’ equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized Series B Convertible Preferred stock, $0.001 par value; 5,313 shares designated as of March 31, 2021 and December 31, 2020 issued and outstanding - None Series A Convertible Preferred stock, $0.001 par value; 7,938 shares designated as of March 31, 2021 and December 31, 2020 issued and outstanding - None — — Common stock, $0.001 par value; 800,000,000 and 400,000,000 shares authorized as of March 31, 2021 and December 31, 2020, respectively; 323,917,731 and 206,008,683 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively, and 54,447 shares to be issued as of December 31, 2020 324 206 Additional paid in capital 464,841 355,037 Accumulated deficit (288,186 ) (267,533 ) Accumulated other comprehensive loss (63 ) (62 ) Total stockholders’ equity 176,916 87,648 Total liabilities and stockholders’ equity $ 183,521 $ 98,183 See the accompanying notes to the condensed consolidated financial statements 3 TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) (unaudited) Three Months Ended March 31, 2021 2020 COSTS AND EXPENSES: Research and development $ 15,327 $ 4,676 General and administrative 5,409 2,621 20,736 7,297 Operating loss (20,736 ) (7,297 ) Interest and other income, net 83 24 Net loss (20,653 ) (7,273 ) Warrant deemed dividend — 451 Preferred stock deemed dividend — 1,260 Net loss available to common stockholders $ (20,653 ) $ (8,984 ) Net loss per common share, basic and diluted $ (0.07 ) $ (0.37 ) Weighted average common shares outstanding, basic and diluted 290,106,510 24,028,970 See the accompanying notes to the condensed consolidated financial statements 4 TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) (unaudited) Three Months Ended March 31, 2021 2020 Net loss $ (20,653 ) $ (7,273 ) Other comprehensive loss: Foreign currency translation loss (1 ) (14 ) Total other comprehensive loss (1 ) (14 ) Comprehensive loss $ (20,654 ) $ (7,287 ) See the accompanying notes to the condensed consolidated financial statements 5 TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (In Thousands, Except Share and Per Share Amounts) (unaudited) Accumulated Series B Convertible Additional Other Preferred stock Common stock Paid in Comprehensive Accumulated Shares Amount Shares Amount Capital Gain (loss) Deficit Total Balance, December 31, 2020 — $ — 206,008,683 $ 206 $ 355,037 $ (62 ) $ (267,533 ) $ 87,648 Issuance of common stock upon exercise of warrants in March 2021 ($0.57 per share) — — 3,400 — 2 — — 2 Issuance of common stock in January 2021 ($0.80 per share), net of transactional expenses of $3,096 — — 50,000,000 50 36,854 — — 36,904 Issuance of common stock in February 2021 ($1.20 per share), net of transactional expenses of $5,002 — — 58,333,334 58 64,939 — — 64,997 Issuance of common stock under at-the-market offering, net of transactional expenses of $230 — — 9,517,867 10 6,769 — — 6,779 Employee stock purchase plan — — 54,447 — 28 — — 28 Stock-based compensation — — — — 1,212 — — 1,212 Foreign currency transaction gain — — — — — (1) — (1) Net loss — — — — — — (20,653 ) (20,653 ) Balance, March 31, 2021 — $ — 323,917,731 $ 324 $ 464,841 $ (63 ) $ (288,186 ) $ 176,916 See the accompanying notes to the condensed consolidated financial statements 6 TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (In Thousands, Except Share and Per Share Amounts) (unaudited) Accumulated Series B Convertible Additional Other Preferred stock Common stock Paid in Comprehensive Accumulated Shares Amount Shares Amount Capital Gain (loss) Deficit Total Balance, December 31, 2019 — $ — 8,531,504 $ 9 $ 226,524 $ (46 ) $ (217,070 ) $ 9,417 Issuance of common stock in exchange for exercise of warrants in February and March 2020 ($0.57 per share) — — 13,111,999 13 7,461 — — 7,474 Deemed dividend in connection with repricing of November 2019 warrants — — — — 451 — — 451 Warrant deemed dividend — — — — (451 ) — — (451 ) Issuance of Series B Convertible preferred stock and common stock warrants in February 2020 ($1,000.00 per share, net of transactional expenses of $711) 5,313 — — — 4,602 — — 4,602 Beneficial conversion feature in connection with issuance of Series B Convertible preferred stock — — — — 1,260 — — 1,260 Preferred stock deemed dividend — — — — (1,260 ) — — (1,260 ) Issuance of common stock and common stock warrants in February 2020 ($0.57 per share, net of transactional expenses of $292) — — 3,837,000 4 1,891 — — 1,895 Issuance of common stock upon conversion of Series B Convertible preferred stock (5,313 ) — 9,321,053 9 (9 ) — — — Issuance of common stock in March 2020 ($1.10 per share, net of transactional expenses of $1,221) — — 14,550,000 14 14,770 — — 14,784 Employee stock purchase plan — — 1,578 — 2 — — 2 Stock-based compensation — — — — 360 — — 360 Foreign currency transaction gain — — — — — (14 ) — (14 ) Net loss — — — — — — (7,273 ) (7,273 ) Balance, March 31, 2020 — $ — 49,353,134 $ 49 $ 255,601 $ (60 ) $ (224,343 ) $ 31,247 See the accompanying notes to the condensed consolidated financial statements 7 TONIX PHARMACEUTICALS HOLDING CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (unaudited) Three Months Ended March 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (20,653 ) $ (7,273 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 6 6 Stock-based compensation 1,212 360 Changes in operating assets and liabilities: Prepaid expenses and other 1,971 (39 ) Accounts payable (1,739 ) (1,662 ) Lease liabilities and ROU asset, net (12 ) (2 ) Accrued expenses and other current liabilities (1,843 ) (716 ) Net cash used in operating activities (21,058 ) (9,326 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (505) — Net cash used in investing activities (505) — CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercise of warrants 2 7,474 Proceeds from ESPP 28 2 Proceeds, net of expenses of $0 and $711, from the sale of preferred stock — 4,602 Proceeds, net of expenses of $8,328 and $1,513, from sale of common stock and warrants 108,680 16,679 Net cash provided by financing activities 108,710 28,757 Effect of currency rate change on cash (1 ) (15 ) Net increase in cash, cash equivalents and restricted cash 87,146 19,416 Cash, cash equivalents and restricted cash beginning of the period 77,308 11,349 Cash, cash equivalents and restricted cash end of period $ 164,454 $ 30,765 Supplemental disclosures of cash flow information: Non-cash financing activities: Series B Convertible preferred stock deemed dividend $ — $ 1,260 Warrants deemed dividend $ — $ 451 See the accompanying notes to the condensed consolidated financial statements 8 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 1 – BUSINESS Tonix Pharmaceuticals Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a clinical-stage biopharmaceutical company focused on discovering, licensing, acquiring and developing small molecules and biologics to treat and prevent human disease and alleviate suffering. All drug product candidates are still in development. The consolidated financial statements include the accounts of Tonix Pharmaceuticals Holding Corp. and its wholly owned subsidiaries, Tonix Sub, Krele LLC, Tonix Pharmaceuticals (Canada), Inc., Tonix Medicines, Inc., Jenner LLC, Tonix Pharma Holdings Limited and Tonix Pharma Limited (collectively hereafter referred to as the “Company” or “Tonix”). All intercompany balances and transactions have been eliminated in consolidation. Going Concern The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and negative cash flows from operating activities. At March 31, 2021, the Company had working capital of approximately $167.1 million. At March 31, 2021, the Company had an accumulated deficit of approximately $288.2 million. The Company held unrestricted cash and cash equivalents of approximately $164.2 million as of March 31, 2021. The Company believes that its cash resources at March 31, 2021, and the proceeds that it raised from equity offerings subsequent to the end of the first quarter of 2021 (See Note 11), will meet its operating and capital expenditure requirements through March 31, 2022, but not beyond. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company continues to face significant challenges and uncertainties and, as a result, its available capital resources may be consumed more rapidly than currently expected due to changes it may make in its research and development spending plans. The Company has the ability to obtain additional funding through public and private financing and collaborative arrangements with strategic partners to increase the funds available to fund operations. However, the Company may not be able to raise capital with terms acceptable to the Company. Without additional funds, it may be forced to delay, scale back or eliminate some of its research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Interim financial statements The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. 9 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) The condensed consolidated balance sheet as of December 31, 2020 contained herein has been derived from audited financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2021. Risks and uncertainties The Company’s primary efforts are devoted to conducting research and development of innovative pharmaceutical and biological products to address public health challenges. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future. Further, the Company does not have any commercial products available for sale and has not generated revenues, and there is no assurance that if any of its product candidates are approved for sale, that the Company will be able to generate cash flow to fund operations. In addition, there can be no assurance that the Company’s research and development will be successfully completed or that any product candidate will be approved or commercially viable. Moreover, the extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time. In December 2019, a novel strain of Coronavirus (“COVID-19”) emerged that has caused significant disruptions to the U.S. and global economy. The spread of COVID-19 has led to regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic instability. Any of these events may in the future have a material adverse effect on our business, operations and financial condition. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions taken to contain COVID-19 or treat its impact, among other things. Use of estimates The preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. Significant estimates include the assumptions used in the fair value of stock-based compensation and other equity instruments, and the percent of completion of research and development contracts. Cash, Cash Equivalents and Restricted Cash The Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original maturity of three months or less when purchased. At March 31, 2021 and December 31, 2020, cash equivalents, which consisted of money market funds, amounted to $100.4 million and $40.4 million, respectively. Restricted cash at both March 31, 2021 and December 31, 2020 of approximately $240,000 collateralizes a letter of credit issued in connection with the lease of office space in Chatham, New Jersey and New York, New York (see Note 14). The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statement of cash flows: March 31, 2021 December 31, 2020 (in thousands) Cash and cash equivalents $ 164,214 $ 77,068 Restricted cash 240 240 Total $ 164,454 $ 77,308 10 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) Property and equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 20 years for buildings, three years for computer assets, five years for furniture and all other equipment and term of lease for leasehold improvements. Depreciation and amortization expense for both quarters ended March 31, 2021 and 2020 was $6,000. All property and equipment is located in the United States and Ireland. Intangible assets with indefinite lives During the year ended December 31, 2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life. Identifiable intangibles with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances indicate that their carrying amount may be less than fair value. As of March 31, 2021, the Company believed that no impairment existed. Leases The Company determines if an arrangement is, or contains, a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the transition date and subsequent lease commencement dates in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments made under operating leases is recognized on a straight-line basis over the lease term. Research and Development Costs The Company outsources certain of its research and development efforts and expenses these costs as incurred, including the cost of manufacturing products for testing, as well as licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired has been expensed as research and development costs, as such property related to particular research and development projects and had no alternative future uses. The Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company accounts for trial expenses according to the timing of various aspects of the trial. The Company determines accrual estimates taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. 11 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) Stock-based compensation All stock-based payments to employees and to nonemployees for their services, including grants of restricted stock units (“RSUs”), and stock options, are measured at fair value on the grant date and recognized in the consolidated statements of operations as compensation or other expense over the requisite service period. The Company accounts for share-based awards in accordance with the provisions of the Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. Foreign Currency Translation Operations of the Canadian subsidiary are conducted in local currency, which represents its functional currency. The U.S. dollar is the functional currency of the other foreign subsidiaries. Balance sheet accounts of the Canadian subsidiary were translated from foreign currency into U.S. dollars at the exchange rate in effect at the balance sheet date and income statement accounts were translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process were included in accumulated other comprehensive loss on the condensed consolidated balance sheets. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income (loss) represents foreign currency translation adjustments. Income Taxes Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of March 31, 2021, the Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. 12 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) Per Share Data The computation of basic and diluted loss per share for the quarters ended March 31, 2021 and 2020 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period. All warrants issued participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of Directors, on the Company’s common stock. For purposes of computing EPS, these warrants are considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. No income was allocated to the warrants for the three months ended March 31, 2021 and March 31, 2020, as results of operations were a loss for the period. Potentially dilutive securities (See Note 12 and Note 13) excluded from the computation of basic and diluted net loss per share, as of March 31, 2021 and 2020, are as follows: 2021 2020 Warrants to purchase common stock 644,906 5,184,210 Options to purchase common stock 22,983,353 665,536 Totals 23,628,259 5,849,746 NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): March 31 December 31 2021 2020 (in thousands) Land $ 5,713 $ 5,713 Construction in progress 3,290 2,800 Office furniture and equipment 400 385 Leasehold improvements 23 23 9,426 8,921 Less: Accumulated depreciation and amortization (356 ) (350 ) $ 9,070 $ 8,571 On September 28, 2020, the Company completed the purchase of its 40,000 square foot facility in Massachusetts for $4,000,000, to house its new Advanced Development Center for accelerated development and manufacturing of vaccines. Of the total purchase price, $1.2 million was allocated to the value of land acquired, and $2.8 million was allocated to construction in progress, as the building was not ready for its intended use. As of March 31, 2021, the asset has not been placed in service. On December 23, 2020, the Company completed the purchase of its approximately 44-acre site in Hamilton, Montana for $4.4 million, for the construction of a vaccine development and commercial scale manufacturing facility. As of March 31, 2021, the asset has not been placed in service. 13 NOTE 4 – FAIR VALUE MEASUREMENTS Fair value measurements affect the Company’s accounting for certain of its financial assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1: Observable inputs, such as quoted prices in active markets. Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category includes U.S. government agency-backed debt securities and corporate-debt securities. Level 3: Unobservable inputs in which there is little or no market data. As of March 31, 2021, and December 31, 2020, the Company used Level 1 quoted prices in active markets to value cash equivalents of $100.4 million and $40.4 million, respectively. The Company did not have any Level 2 or Level 3 assets or liabilities as of both March 31, 2021 and December 31, 2020. 14 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 5 – STOCKHOLDERS’ EQUITY On March 26, 2021, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 400,000,000 to 800,000,000. On October 1, 2020, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer meets the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”). On March 3, 2021, the Company received a letter from Nasdaq stating that Company had regained compliance with the Minimum Bid Price Requirement because the Company’s shares had a closing bid price at or above $1.00 per share for a minimum of 20 consecutive business days. NOTE 6 – ASSET PURCHASE AGREEMENT WITH KATANA On December 22, 2020, the Company entered into an asset purchase agreement (the “Katana Asset Purchase Agreement”) with Katana Pharmaceuticals, Inc. (“Katana”) pursuant to which Tonix acquired Katana assets related to insulin resistance and related syndromes, including obesity (the “Katana Assets”). In connection with the acquisition of the Katana Assets, Tonix assumed Katana’s rights and obligations under that certain Exclusive License Agreement by and between Katana and The University of Geneva (“Geneva”) (the “Geneva License “Agreement”) pursuant to an Assignment and Assumption Agreement with Geneva (“Geneva Assignment and Assumption Agreement”), dated December 22, 2020. As consideration for entering into the Katana Asset Purchase Agreement, Tonix paid $0.7 million to Katana. The costs associated with the cash payments were recorded to research and development expenses in the statement of operations for the year ended December 31, 2020. Because the Katana intellectual property was acquired prior to FDA approval, the cash consideration totaling $0.7 million, was expensed as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business. Pursuant to the terms of the Geneva Assignment and Assumption Agreement, Geneva has granted to Tonix an exclusive license, with the right to sublicense, certain patents related to the Katana Assets. Tonix is obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Geneva License Agreement specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual maintenance fee payable to Geneva. As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 7 – ASSET PURCHASE AGREEMENT WITH TRIGEMINA On June 11, 2020, the Company entered into an asset purchase agreement (the “Trigemina Asset Purchase Agreement”) with Trigemina, Inc. (“Trigemina”) and certain shareholders named therein (the “Executive Shareholders”) pursuant to which Tonix acquired Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection with the acquisition of the Trigemina Assets, Tonix assumed Trigemina’s rights and obligations under that certain Amended and Restated Exclusive License Agreement, dated November 30, 2007, as amended, by and between Trigemina and The Board of Trustees of the Leland Stanford Junior University (“Stanford”) (the “Stanford License “Agreement”) pursuant to an Assignment and Assumption Agreement with Stanford (“Assignment and Assumption Agreement”), dated June 11, 2020. As consideration for entering into the Asset Purchase Agreement, Tonix paid $824,759 to Trigemina and issued to Trigemina 2,000,000 shares of the Company’s common stock, valued at $0.68 per share, based on the closing stock price on June 11, 2020, and paid Stanford $250,241 pursuant to the terms of the Assignment and Assumption Agreement. The common stock is unregistered and subject to a 12-month lock-up and a Shareholder Voting Agreement, dated June 11, 2020, pursuant to which Trigemina and the Executive Shareholders have agreed to vote the common stock on any matter put to a vote of the shareholders of the Company in accordance with management’s recommendations. Both the costs associated with the cash payments and share issuance, totaling $2.4 million, were recorded to research and development expenses in the statement of operations for the year ended December 31, 2020. Because the Trigemina intellectual property was acquired prior to FDA approval, the cash and stock consideration, was expensed as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business. Pursuant to the terms of the Assignment and Assumption Agreement, Stanford has granted to Tonix an exclusive license, with the right to sublicense, certain patents related to the Trigemina Assets. Stanford has reserved for itself the right to practice under the patents for academic research and educational purposes. Tonix is obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Trigemina License Agreement specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual maintenance fee payable to Stanford. 15 As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 8 – ASSET PURCHASE AGREEMENT WITH TRIMARAN On August 19, 2019, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with TRImaran Pharma, Inc. (“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant to which Tonix acquired TRImaran’s assets related to certain pyran-based compounds (the “Assets”). In connection with the acquisition of the Assets, Tonix entered into a First Amended and Restated Exclusive License Agreement (the “WSU License Agreement”) with Wayne State University (“WSU”) on August 19, 2019. As consideration for entering into the Asset Purchase Agreement, Tonix paid $100,000 to TRImaran and has assumed certain liabilities of TRImaran totaling $68,500. Upon the achievement of specified development, regulatory and sales milestones, Tonix also agreed to pay TRImaran and the Selling Shareholders, in restricted stock or cash, at Tonix’s option, a total of approximately $3.4 million. Pursuant to the terms of the Asset Purchase Agreement, TRImaran and the Selling Shareholders are prohibited from disclosing confidential information related to the Assets and are restricted from engaging, for a period of three years, in the development or commercialization of any therapeutic containing any pyran-based drug compound for the treatment of post-traumatic stress disorder, attention deficit hyperactivity disorder or major depressive disorder. Also for a period of three years, if TRImaran or any Selling Shareholder engage in the research or development of any potential therapeutic compound for the treatment of any central nervous system disorder, TRImaran or such Selling Shareholder is obliged to provide notice and opportunity to Tonix to make an offer to acquire or license rights with respect to such product candidate. Pursuant to the terms of the WSU License Agreement, WSU has granted to Tonix an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”) related to the Assets. WSU has reserved for itself the right to practice the Technology for academic research and educational purposes. Tonix is obligated to use commercially reasonable efforts to obtain regulatory approval for one or more products utilizing the Technology (“WSU Products”) and to use commercially reasonable marketing efforts throughout the term of the WSU License Agreement. The WSU License Agreement specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual maintenance fee payable to WSU. Tonix is obligated to substantially manufacture WSU Products in the United States if WSU Products will be sold in the United States. Pursuant to the WSU License Agreement, Tonix has agreed to pay $75,000 to WSU as reimbursement of certain patent expenses, and, upon the achievement of specified development, regulatory and sales milestones, the Company also agreed to pay WSU, milestone payments totaling approximately $3.4 million. Tonix has also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by Tonix or a sublicensee on a tiered basis based on net sales, and additional sublicense fees on certain consideration received from sublicensees. Royalties on each particular WSU Product are payable on a country-by-country and Product-by-Product basis until the date of expiration of the last valid claim in the last to expire of the issued patents covered by the WSU License Agreement. Royalties payable on net sales of WSU Products may be reduced by 50% of the royalties payable by Tonix to any third party for intellectual property rights which are necessary for the practice of the rights licensed to Tonix under the WSU License Agreement, provided that the royalty payable on a WSU Product may not be reduced by more than 50%. Each party also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy. The WSU License Agreement contains provisions relating to termination, indemnification, confidentiality and other customary matters for an agreement of this kind. As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. 16 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 9 – LICENSE AGREEMENT WITH INSERM On February 11, 2021, the Company entered into a license agreement (the “Inserm License Agreement”) pursuant to which it licensed technology using oxytocin-based therapeutics for the treatment of Prader-Willi syndrome and non-organic failure to thrive disease from Inserm (the French National Institute of Health and Medical Research), Aix-Marseille Université and Centre Hospitalier Universitaire of Toulouse. The Inserm License Agreement provides for the payment of annual fees and milestone payments upon the occurrence of specified sales milestones totaling approximately $0.4 million, as well royalties on net sales of products based on the licensed technology, and assignment/transfer and sublicense royalties. As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 10 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY On September 16, 2019, the Company entered into an exclusive License Agreement (the “Columbia License Agreement”) with the Trustees of Columbia University in the City of New York (“Columbia”) pursuant to which Columbia granted to Tonix an exclusive license, with the right to sublicense, certain patents and technical information (collectively, the “TFF2 Technology”) related to a recombinant Trefoil Family Factor 2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2 Product”). Pursuant to the terms of the Columbia License Agreement, Columbia reserved for itself the right to practice the TFF2 Technology for academic research and educational purposes. The Company paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research and development expenses in the statement of operations for the year ended December 31, 2019. The Company is obligated to use Commercially Reasonable Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified developmental milestones. The Company agreed to pay Columbia single-digit royalties on net sales of (i) TFF2 Products sold by Tonix or a sublicensee and (ii) any other products that involve material or technical information related to the TFF2 Product and transferred to Tonix pursuant to the Columbia License Agreement (“Other Products”) sold by Tonix or a sublicensee. Royalties on each particular TFF2 Product are payable on a country-by-country and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued patents covered by the Columbia License Agreement, and (ii) a specified period of time after the first commercial sale of a TFF2 Product in the country in question. Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis until a specified period of time after the first commercial sale of such particular Other Product in such country. Royalties payable on net sales of the TFF2 Product and Other Products may be reduced by 50% of the royalties payable by Tonix to any third party for intellectual property rights which are necessary for the practice of the rights licensed to Tonix under the Columbia License Agreement, provided that the royalty payable on a Product or Other Product may not be reduced by more than 50%. The Company is also obligated to make contingent milestone payments to Columbia totaling $4.1 million on a Product-by-Product basis upon the achievement of certain development, approval and sales milestones related to a TFF2 Product. In addition, the Company shall pay Columbia 5% of consideration, other than royalty payments and certain other categories of consideration, payable to the Company by a sublicensee. As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. On May 20, 2019, the Company entered into an exclusive License Agreement (the “License Agreement”) with Columbia pursuant to which Columbia, for itself and on behalf of the University of Kentucky and the University of Michigan (collectively, the “Institutions”) granted to the Company an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”) related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”). Pursuant to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the Technology for academic research and educational purposes. The Company agreed to pay a six-digit license fee to Columbia as consideration for entering into the License Agreement. The Company is obligated to use Commercially Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product, and to achieve specified developmental milestones. The first 50% of the license fee was paid by June 30, 2019, while the remaining 50% license fee, was paid during the second quarter of 2020. Both installments of the license fee were recorded to research and development expenses in the 2019 statement of operations. 17 The Company agreed to pay Columbia single-digit royalties on net sales of (i) Products sold by the Company or a sublicensee and (ii) any other products that involve material or technical information related to the Product and transferred to the Company pursuant to the License Agreement (“Other Products”) sold by the Company or a sublicensee. Royalties on each particular Product are payable on a country-by-country and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued patents covered by the License Agreement, (ii) a specified period of time after the first commercial sale of a Product in the country in question, or (iii) expiration of any market exclusivity period granted by a regulatory agency. Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis until the later of (i) a specified period of time after the first commercial sale of such particular Other Product in such country or (ii) expiration of any market exclusivity period granted by a regulatory agency. Royalties payable on net sales of the Product and Other Products may be reduced by 50% of the royalties payable by the Company to any third party for intellectual property rights which are necessary for the practice of the rights licensed to the Company under the License Agreement, provided that the royalty payable on a Product or Other Product may not be reduced by more than 50%. The Company is also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis upon the achievement of certain development, approval and sales milestones related to a Product. In addition, the Company shall pay Columbia 5% of consideration, other than royalty payments and certain other categories of consideration, payable to the Company by a sublicensee. As of March 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. 18 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 11 – SALE OF COMMON STOCK February 2021 Financing On February 8, 2021, the Company entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale of 58,333,334 shares of its common stock , in a registered direct public offering (“the February 2021 Financing”), with A.G.P/Alliance Global Partners (“AGP”), acting as placement agent. The public offering price for each share of common stock was $1.20. The February 2021 Financing closed on February 9, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $4.9 million. The Company incurred other offering expenses of approximately $0.1 million. The Company received net proceeds of approximately $65.0 million, after deducting the fees and other offering expenses. January 2021 Financing On January 11, 2021, the Company entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale of 50,000,000 shares of its common stock in a registered direct public offering (“the January 2021 Financing”), with AGP as placement agent. The public offering price for each share of common stock was $0.80. The January 2021 Financing closed on January 13, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $2.8 million. The Company incurred other offering expenses of approximately $0.3 million. The Company received net proceeds of approximately $36.9 million, after deducting the fees and other offering expenses. At-the-Market Offerings On April 8, 2020, the Company entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which the Company may issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $50.0 million in at-the-market offerings (“ATM”) sales. On the same day, the Company filed a prospectus supplement under a shelf registration relating to the Sales Agreement. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. On September 4, 2020, the Company filed an amended prospectus supplement under a shelf registration relating to the Sales Agreement to increase the aggregate offering price to $100.0 million in ATM sales under the Sales Agreement. During the quarter ended March 31, 2021, the Company sold approximately 9.5 million shares of common stock under the Sales Agreement, for gross proceeds of approximately $7.0 million. Subsequent to March 31, 2021, the Company has sold 2.6 million shares of common stock under the Sales Agreement, for gross proceeds of approximately $3.2 million. On April 19, 2021, the Company filed an amended prospectus supplement under a shelf registration relating to the Sales Agreement to increase the aggregate offering price to $170.0 million in ATM sales under the Sales Agreement. March 2020 Financing On February 28, 2020, the Company entered into an underwriting agreement with AGP, relating to the issuance and sale of 14,550,000 shares of common stock, in a registered direct public offering (“the March 2020 Financing”). The public offering price for each share of common stock was $1.10. The March 2020 Financing closed on March 3, 2020. AGP purchased the shares at a seven percent discount to the then current public price, for an aggregate discount of $1.1 million. The Company incurred other offering expenses of approximately $0.1 million. The Company received net proceeds of approximately $14.8 million, after deducting the underwriting discount and other offering expenses. February 2020 Financing On February 7, 2020, the Company entered into an underwriting agreement with AGP pursuant to which the Company sold securities consisting of 3,837,000 Class A Units at a public offering price of $0.57 per unit, with each unit consisting of one share of common stock and one warrant to purchase one share of common stock, and 5,313 Class B Units at a public offering price of $1,000 per unit, with each unit consisting of one share of Series B Convertible Preferred Stock, with a conversion price of $0.57 per share, convertible into 1,754.386 shares of common stock and warrants to purchase 1,754.386 shares of common stock (“the February 2020 Financing”). The warrants have an exercise price of $0.57, are immediately exercisable and expire five years from the date of issuance. The February 2020 Financing closed on February 11, 2020. AGP purchased the Class A and Class B Units at a seven-percent discount to the public offering price, for an aggregate discount of approximately $0.5 million. The Company incurred other offering expenses of approximately $0.5 million. The Company received net proceeds of approximately $6.5 million, after deducting the underwriting discount and other offering expenses. 19 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) After allocating proceeds to the warrants issued with the Series B Convertible Preferred Stock, the effective conversion price of the Series B Convertible Preferred Stock was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a beneficial conversion feature (“BCF”) at that date. Since the Series B Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF of $1.3 million, based on intrinsic value, was charged to additional paid in capital as a non-cash “deemed dividend” and included in net loss to common stockholders. During the first quarter of 2020, all 5,313 shares of Series B Convertible Preferred Stock were converted into common stock. During February and March 2020, 10.8 million of the warrants issued in the February 2020 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately $6.2 million. November 2019 Financing On November 14, 2019, the Company entered into an underwriting agreement with AGP pursuant to which the Company sold securities consisting of 547,420 Class A Units at a public offering price of $1.94 per unit, with each unit consisting of one share of common stock, one warrant to purchase one share of common stock (“primary warrant”) and one-half of one warrant to purchase one half of one share common stock (“common warrant”), and 7,938 Class B Units at a public offering price of $1,000 per unit, with each unit consisting of one share of Series A Convertible Preferred Stock, with a conversion price of $1.94 per share, convertible into 515.464 shares of common stock, primary warrants to purchase 515.464 shares of common stock, and common warrants to purchase 257.732 shares of common stock (the “November 2019 Financing”). The primary warrants have an exercise price of $1.94, are immediately exercisable and expire five years from the date of issuance. The common warrants have an exercise price of $1.94, are exercisable and expire 12 months from the date of issuance. The common warrants are exercisable on a cashless basis at the option of the holder on the earlier of 30 days from issuance and the date by which an aggregate of $9.0 million of our securities were traded. The November 2019 Financing closed on November 19, 2019. AGP purchased the Class A and Class B Units at a seven-percent discount to the public offering price, for an aggregate discount of approximately $0.6 million. The Company incurred other offering expenses of approximately $0.5 million. The Company received net proceeds from the November 2019 Financing of approximately $7.9 million, after deducting the underwriting discount and other offering expenses. After allocating proceeds to the warrants issued with the Series A Convertible Preferred Stock, the effective conversion price of the Series A Convertible Preferred Stock was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a BCF at that date. Since the Series A Preferred Stock has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by the BCF of $2.5 million, based on the intrinsic value, was charged to additional paid in capital as a non-cash “deemed dividend” and included in net loss to common stockholders. As of December 31, 2019, all 7,938 shares of Series A Convertible Preferred Stock were converted into common stock. As a result of the issuance of common stock in February 2020 for less than the November 2019 warrant exercise price, a repricing of the warrants issued in the November 2019 Financing was triggered. The Company recognized a one-time non-cash “deemed dividend” of $0.5 million, representing the increase in the fair value of the warrants. The non-cash “deemed dividend” was charged to additional paid in capital and included in net loss to stockholders. During February and March 2020, 2.3 million of the warrants issued in the November 2019 financing, with an exercise price of $0.57, were exercised for proceeds of approximately $1.3 million. 20 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 12 – STOCK-BASED COMPENSATION Stock Incentive Plans On May 3, 2019, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan provided for the issuance of up to 140,000 shares of common stock. With the adoption of the 2020 Plan (as defined below), no further grants may be made under the 2019 Plan. On January 16, 2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan provided for the issuance of up to 600,000 shares of common stock. With the adoption of the Amended and Restated 2020 Plan (as defined below), no further grants may be made under the 2020 Plan. On May 1, 2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan (“Amended and Restated 2020 Plan”), and together with the 2020 Plan and the 2019 Plan, the “Plans”). Under the terms of the Amended and Restated 2020 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up to 10,000,000 shares of common stock, which amount will be increased to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in the Amended and Restated 2020 Plan). In addition, the Amended and Restated 2020 Plan contains an “evergreen provision” providing for an annual increase in the number of shares of our common stock available for issuance under the Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares of common stock reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year (including shares subject to outstanding awards, issued pursuant to awards or available for future awards). The Board of Directors determines the exercise price, vesting and expiration period of the grants under the Amended and Restated 2020 Plan. However, the exercise price of an incentive stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration period of grants under the Amended and Restated 2020 Plan may not be more than ten years. As of March 31, 2021, 18,883,676 shares were available for future grants under the Amended and Restated 2020 Plan. General A summary of the stock option activity and related information for the Plans for the three months ended March 31, 2021 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2020 10,209,286 $ 2.93 9.26 $ 131,558 Grants 12,774,310 $ 1.34 Exercised — — Forfeitures or expirations (243) 2,937.37 Outstanding at March 31, 2021 22,983,353 $ 2.02 9.51 $ 5,198,480 Exercisable at March 31, 2021 362,874 $ 54.08 7.04 $ 210,218 The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than the Company’s closing stock price at the respective dates. The weighted average fair value of options granted for the three-month periods ended March 31, 2021 and 2020 was $1.10 and $0.35 per share, respectively. 21 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) The Company measures the fair value of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions discussed below, and the closing market price of the Company’s common stock on the date of the grant. The fair value of the award is measured on the grant date. One-third of most stock options granted pursuant to the Plans vest 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten years from the date of grant. In addition, the Company issues options to directors which vest over a one-year period. The Company also issues premium options to executive officers which have an exercise price greater than the grant date fair value and has issued performance-based options which vest when target parameters are met or probable of being met, subject in each case to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line method. The assumptions used in the valuation of stock options granted during the three months ended March 31, 2021 and 2020 were as follows: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Risk-free interest rate 1.00% to 1.34 % 0.49% to 1.25 % Expected term of option 6.00 years 5.50 to 6.00 years Expected stock price volatility 132.23% to 132.78 % 124.11% to 127.83 % Expected dividend yield 0.0 0.0 The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on the Company’ historical stock price volatility. Stock-based compensation expense relating to options granted of $1.2 million, of which $0.8 million and $0.4 million, related to General and Administration and Research and Development, respectively was recognized for the quarter ended March 31, 2021. Stock-based compensation expense relating to options granted of $0.4 million, of which $0.3 million and $0.1 million, related to General and Administration and Research and Development, respectively was recognized for the quarter ended March 31, 2020. As of March 31, 2021, the Company had approximately $18.4 million of total unrecognized compensation cost related to non-vested awards granted under the Plans, which the Company expects to recognize over a weighted average period of 2.67 years. Employee Stock Purchase Plans On May 3, 2019, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan (the “2019 ESPP”). As a result of adoption of the 2020 ESPP, as defined below, by the stockholders, no further grants may be made under the 2019 ESPP Plan. On May 1, 2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2020 Employee Stock Purchase Plan (the “2020 ESPP”). The 2020 ESPP allows eligible employees to purchase up to an aggregate of 300,000 shares of the Company’s common stock. Under the 2020 ESPP, on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering period, which allows the eligible employees to purchase shares of the Company’s common stock at the end of the offering period. Each offering period under the 2020 ESPP is for six months, which can be modified from time-to-time. Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the 2020 ESPP, subject to the statutory limit under the Code. As of March 31, 2021, 245,553 shares were available for future sales under the 2020 ESPP. 22 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) The 2020 and 2019 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the quarters ended March 31, 2021 and 2020, $47,000 and $0, respectively were expensed. In January 2020, 1,578 shares that were purchased as of December 31, 2019, under the 2019 ESPP, were issued. Accordingly, during the first quarter of 2020, approximately $2,000 of employee payroll deductions accumulated at December 31, 2019, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $7,000 was returned to the employees. As of December 31, 2020, approximately $32,000 of employee payroll deductions have accumulated and have been recorded in accrued expenses. In January 2021, 54,447 shares that were purchased as of December 31, 2020, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2021, approximately $28,000 of employee payroll deductions accumulated at December 31, 2020, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $4,000 was returned to the employees. NOTE 13 – WARRANTS TO PURCHASE COMMON STOCK The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at March 31, 2021: Exercise Number Expiration Price Outstanding Date $ 0.50 24,920 November 2024 $ 0.57 123,500 February 2025 $ 35.00 490,571 December 2023 $ 630.00 5,441 October 2021 $ 687.50 474 October 2021 644,906 During the quarter ended March 31, 2021, 3,400 warrants from the February 2020 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately $2,000. During the quarter ended March 31, 2020, 2.3 million warrants from the November 2019 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately $1.3 million. During the quarter ended March 31, 2020, 10.8 million warrants from the February 2020 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately $6.2 million. 23 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 14 – LEASES The Company has various operating lease agreements, which are primarily for office space. These agreements frequently include one or more renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At March 31, 2021, the Company has right-of-use assets of $0.9 million and a total lease liability for operating leases of $1.0 million of which $0.6 million is included in long-term lease liabilities and $0.4 million is included in current lease liabilities. At March 31, 2021, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in thousands): Year Ending December 31, Remainder of 2021 $ 350 2022 186 2023 158 2024 145 2025 149 988 Included interest (25 ) $ 963 During the quarter ended March 31, 2020, the Company entered into a lease amendment, resulting in the Company recognizing an operating lease liability of approximately $35,000 based on the present value of the future minimum rental payments. The Company also recognized corresponding ROU assets of approximately $35,000. No new and amendments to operating leases were entered into by the Company during the quarter ended March 31, 2021. Operating lease expense was $0.2 and $0.1 million for the quarters ended March 31, 2021 and 2020, respectively. Other information related to leases is as follows: Cash paid for amounts included in the measurement of lease liabilities: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Operating cash flow from operating leases (in thousands) $ 158 $ 115 Weighted Average Remaining Lease Term Operating leases 3.54 years 0.84 years Weighted Average Discount Rate Operating leases 1.47% 3.52% 24 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2021 AND 2020 (UNAUDITED) NOTE 15 – COMMITMENTS Contractual agreements The Company has entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $30.0 million at March 31, 2021 for future work to be performed. On March 3, 2021, the Company entered into a $2.9 million contingent non-binding Purchase and Sales Agreement in connection with a property in Massachusetts. The property is intended for process development activities. Defined contribution plan The Company established a qualified defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Code, whereby all eligible employees may participate. Participants may elect to defer a percentage of their annual pretax compensation to the 401(k) Plan, subject to defined limitations. The Company is required to make contributions to the 401(k) Plan equal to 100 percent of each participant’s pretax contributions of up to six percent of his or her eligible compensation, and the Company is also required to make a contribution equal to three percent of each participant’s salary, on an annual basis, subject to limitations under the Code. For the three months ended March 31, 2021 and 2020, the Company charged operations $70,000 and $50,000, respectively, for contributions under the 401(k) Plan. NOTE 16 – SUBSEQUENT EVENTS On April 14, 2021, the Company and OyaGen, Inc. (“OyaGen”) entered into an exclusive License Agreement (the “OyaGen License Agreement”) pursuant to which OyaGen granted to Tonix an exclusive license to certain patents and technical information related to an antiviral inhibitor of SARS-CoV-2, sangivamycin, and to develop and commercialize products thereunder, and to acquire rights to any technology based on the thereon for the prevention or treatment of Covid-19 developed by OyaGen during the term of the License Agreement. As consideration for entering into the License Agreement, Tonix agreed to pay a low-seven digit license fee to OyaGen, and agreed to issue to OyaGen and an affiliated entity an aggregate of 2,752,294 shares of the Company’s common stock, which is unregistered and subject to a six-month lock-up and a voting agreement, pursuant to which OyaGen and the affiliated entity have agreed to vote the common stock on any matter put to a vote of the shareholders of the Company in accordance with management’s recommendations. The OyaGen License also provides for single-digit royalties and contingent milestone payments. Subsequent to March 31, 2021, the Company has sold 2.6 million shares of common stock under the ATM Sales Agreement, for gross proceeds of approximately $3.2 million. On April 19, 2021, the Company filed an amended prospectus supplement under a shelf registration relating to the ATM Sales Agreement to increase the aggregate offering price to $170.0 million in ATM sales under the ATM Sales Agreement. 25