Tonix Pharmaceuticals Holding Corp. 10-K

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TONIX PHARMACEUTICALS HOLDING CORP. Report of Independent Registered Public Accounting Firm F-2 Consolidated balance sheets as of December 31, 2021 and 2020 F-4 Consolidated statements of operations for the years ended December 31, 2021 and 2020 F-5 Consolidated statements of comprehensive loss for the years ended December 31, 2021 and 2020 F-6 Consolidated statements of stockholders’ equity for the years ended December 31, 2021 and 2020 F-7 – F-8 Consolidated statements of cash flows for the years ended December 31, 2021 and 2020 F-9 Notes to consolidated financial statements F-10 – F-32 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Tonix Pharmaceuticals Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has continuing losses and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F- 2 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. Accrual for clinical trial expenses As described in Note 2 to the consolidated financial statements, at each balance sheet date the Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and under clinical site agreements in connection with conducting clinical trials. The Company accounts for trial expenses according to the timing of various aspects of the trial. The Company’s accrual for clinical trial expenses of approximately $2.8 million is included in accrued expenses and other current liabilities in the December 31, 2021 consolidated balance sheet. The Company also recorded prepaid clinical trial expenses of approximately $7.7 million within prepaid expenses and other in the December 31, 2021 consolidated balance sheet. The amounts recorded for clinical trial expenses represent the Company’s estimates of the unpaid and prepaid clinical trial expenses based on facts and circumstances known to the Company at that time, and are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. The estimation of clinical trial expenses was also identified as a critical accounting estimate by management. We identified the accrual for clinical trial expenses as a critical audit matter due to the significant judgment and estimation required by management in determining progress or state of completion of clinical trials or services completed. This in turn led to a high degree of auditor subjectivity, and significant audit effort was required in performing our procedures and evaluating audit evidence relating to estimates made by management. Addressing the matter involved performing procedures and evaluating audit evidence, in connection with forming our overall opinion on the consolidated financial statements. We obtained an understanding of Management’s process and evaluated the design of controls over developing its estimate of accrued and prepaid clinical trial expenses, including the process of estimating the expenses incurred to date based on the status of the clinical trials. Our procedures also included, among others, reading agreements and contract amendments with vendors, consultants and clinical research organizations and clinical site agreements in connection with conducting clinical trials, and evaluating the significant assumptions described above and the methods used in developing the clinical trial estimates and re-calculating the amounts that were unpaid and prepaid at the balance sheet date. We confirmed contractual commitments and amounts completed, paid and unpaid directly with the third parties involved in performing the clinical trial services on behalf of the Company. We also made direct inquiries of financial and clinical Company personnel regarding the contract amount including change orders, status and progress to completion of clinical trials, amounts paid to date under each contract, and description of future commitments. We also assessed the historical accuracy of management’s estimates, and compared the current estimate of expenses incurred to estimates previously made by management. /s/ EisnerAmper LLP We have served as the Company’s auditor since 2010. EISNERAMPER LLP Iselin, New Jersey March 14, 2022 F- 3 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2021 AND 2020 (In Thousands, Except Par Value and Share Amounts) 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 178,660 $ 77,068 Prepaid expenses and other 10,389 10,921 Total current assets 189,049 87,989 Property and equipment, net 50,558 8,571 Operating lease right-to-use assets 914 1,258 Security deposit 19 5 Restricted cash 240 240 Intangible asset 120 120 Total assets $ 240,900 $ 98,183 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 13,282 $ 4,598 Accrued expenses and other current liabilities 7,945 4,626 Lease liability, short term 489 595 Total current liabilities 21,716 9,819 Lease liability, long term 467 716 Total liabilities 22,183 10,535 Commitments (See Note 17) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized Series B Convertible Preferred stock, 5,313 shares designated as of both December 31, 2021 and 2020; issued and outstanding - None — — Series A Convertible Preferred stock, 0 shares designated as of both December 31, 2021 and 2020; issued and outstanding - None — — Common stock, $ 0.001 par value; 800,000,000 and 400,000,000 shares authorized as of December 31, 2021 and 2020, respectively; 496,245,564 and 206,008,683 shares issued and outstanding as of December 31, 2021 and 2020, respectively and 129,041 and 54,447 shares to be issued as of December 31, 2021 and December 31, 2020, respectively 496 206 Additional paid in capital 578,133 355,037 Accumulated deficit ( 359,820 ) ( 267,533 ) Accumulated other comprehensive loss ( 92 ) ( 62 ) Total stockholders’ equity 218,717 87,648 Total liabilities and stockholders’ equity $ 240,900 $ 98,183 See the accompanying notes to the consolidated financial statements F- 4 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) Year ended December 31, 2021 2020 COSTS AND EXPENSES: Research and development $ 68,838 $ 36,157 General and administrative 23,474 14,354 92,312 50,511 Operating loss ( 92,312 ) ( 50,511 ) Interest income, net 25 48 Net loss ( 92,287 ) ( 50,463 ) Warrant deemed dividend — ( 451 ) Preferred stock deemed dividend — ( 1,260 ) Net loss available to common stockholders $ ( 92,287 ) $ ( 52,174 ) Net loss per common share, basic and diluted $ ( 0.26 ) $ ( 0.55 ) Weighted average common shares outstanding, basic and diluted 360,215,323 94,591,715 See the accompanying notes to the consolidated financial statements F- 5 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Year ended December 31, 2021 2020 Net loss $ ( 92,287 ) $ ( 50,463 ) Other comprehensive loss: Foreign currency translation loss ( 30 ) ( 16 ) Comprehensive loss $ ( 92,317 ) $ ( 50,479 ) See the accompanying notes to the consolidated financial statements F- 6 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands, Except Share and Per Share Amounts) Accumulated Series B Convertible Additional Other Preferred stock Common stock Paid in Comprehensive Accumulated Shares Amount Shares Amount Capital Income (loss) Deficit Total Balance, December 31, 2020 — $ — 206,008,683 $ 206 $ 355,037 $ ( 62 ) $ ( 267,533 ) $ 87,648 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 exchange for exercise of warrants in March 2021 ($ 0.57 per share) — — 3,400 — 2 — — 2 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 $ 2,332 — — 110,248,449 111 69,181 — — 69,292 Issuance of common stock under 2021 Purchase Agreement, net of transactional expenses of $ 75 — — 64,539,361 65 41,131 — — 41,196 Issuance of commitment shares under 2021 Purchase agreement — — 1,280,000 — — — — — Issuance of common stock in the acquisition of the OyaGen license — — 2,752,294 3 2,997 — — 3,000 Issuance of commitment shares under Lincoln park Purchase agreement — — 2,909,091 3 ( 3 ) — — — Employee stock purchase plan — — 170,952 — 96 — — 96 Stock-based compensation — — — — 7,899 — — 7,899 Foreign currency transaction loss — — — — — ( 30 ) — ( 30 ) Net loss — — — — — — ( 92,287 ) ( 92,287 ) Balance, December 31, 2021 — $ — 496,245,564 $ 496 $ 578,133 $ ( 92 ) $ ( 359,820 ) $ 218,717 See the accompanying notes to the consolidated financial statements F- 7 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Dollars In Thousands Except Per Share Amounts) Accumulated Series B Convertible Additional Other Preferred stock Common stock Paid in Comprehensive Accumulated Shares Amount Shares Amount Capital Income (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 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 net of transactional expenses of $ 1,221 — — 14,550,000 14 14,770 — — 14,784 Issuance of common stock in June 2020 under the equity line — — 464,471 1 277 — — 278 Issuance of common stock under At-the-market offering, net of transaction expenses of $ 2,304 — — 102,676,174 102 68,700 — — 68,802 Issuance of common stock in the acquisition of Trigemina assets — — 2,000,000 2 1,358 — — 1,360 Issuance of common stock in July 2020 net of transactional expenses of $ 829 — — 20,940,000 21 9,620 — — 9,641 Issuance of common stock in exchange for exercise of warrants in July and August 2020 (see note 13) — — 4,533,404 5 2,417 — — 2,422 Issuance commitment under 2020 Purchase Agreement — — 600,000 — — — — — Issuance of common stock under 2020 Purchase Agreement — — 25,441,500 26 14,548 — — 14,574 Employee stock purchase plan — — 1,578 — 2 — — 2 Stock-based compensation — — — — 2,876 — — 2,876 Foreign currency transaction loss — — — — — ( 16 ) — ( 16 ) Net loss — — — — — — ( 50,463 ) ( 50,463 ) Balance, December 31, 2020 — $ — 206,008,683 $ 206 $ 355,037 $ ( 62 ) $ ( 267,533 ) $ 87,648 See the accompanying notes to the consolidated financial statements F- 8 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 92,287 ) $ ( 50,463 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 50 27 Common stock issued to acquire in-process research and development 3,000 1,360 Stock-based compensation 7,899 2,876 Changes in operating assets and liabilities: Prepaid expenses 518 ( 6,859 ) Accounts payable 3,526 1,528 Lease liabilities and ROU asset, net ( 11 ) 51 Accrued expenses and other current liabilities 1,748 2,914 Net cash used in operating activities ( 75,557 ) ( 48,566 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 35,307 ) ( 8,564 ) Net cash used in investing activities ( 35,307 ) ( 8,564 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of warrants 2 9,896 Proceeds from ESPP 96 2 Proceeds, net of $ 0 and $ 711 expenses, from sale of preferred stock — 4,602 Proceeds, net of $ 10,505 and $ 4,646 expenses, from sale of common stock and warrants 212,389 108,605 Net cash provided by financing activities 212,487 123,105 Effect of currency rate change on cash ( 31 ) ( 16 ) Net increase in cash, cash equivalents and restricted cash 101,592 65,959 Cash, cash equivalents and restricted cash beginning of the period 77,308 11,349 Cash, cash equivalents and restricted cash end of period $ 178,900 $ 77,308 Supplemental disclosures of cash flow information: Purchases of property and equipment included in accounts payable and accrued liabilities $ 6,730 $ — Warrants deemed dividend $ — $ 451 Series A Convertible preferred stock and deemed dividend $ — $ 1,260 See the accompanying notes to consolidated financial statements F- 9 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 therapeutics and diagnostics to treat and prevent human disease and alleviate suffering. The therapeutics include small molecules and biologics and all drug product and diagnostic 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 R&D Center 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 December 31, 2021, the Company had working capital of approximately $ 167.3 million . At December 31, 2021, the Company had an accumulated deficit of approximately $ 359.8 million . The Company held cash and cash equivalents of approximately $ 178.7 million as of December 31, 2021. The Company believes that its cash resources at December 31, 2021 and the proceeds that it raised from equity offerings in the first quarter of 2022 (See Note 19), will meet its operating and capital expenditure requirements through the end of 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 on 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. F- 10 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES 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 its products 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 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. 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 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 December 31, 2021 and December 31, 2020, cash equivalents, which consisted of money market funds, amounted to $ 120.4 million and $ 40.4 million , respectively. Restricted cash at both December 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 City (see Note 16). The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statement of cash flows: December 31, 2021 December 31, 2020 (in thousands) Cash and cash equivalents $ 178,660 $ 77,068 Restricted cash 240 240 Total $ 178,900 $ 77,308 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 and laboratory equipment, three years for computer assets, five years for furniture and all other equipment and term of lease for leasehold improvements. Depreciation on assets begin when the asset is placed in service. Depreciation and amortization expense for the years ended December 31, 2021, and 2020 was $ 50,000 and $ 27,000 , respectively. The Company’s property and equipment is located in the United States. 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 December 31, 2021, and 2020, the Company believed that no impairment existed. F- 11 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Leases The Company determines if an arrangement is 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. 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 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 December 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. F- 12 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Company’s Canadian subsidiary, Tonix Pharmaceuticals (Canada), Inc., 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 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. Per Share Data The computation of basic and diluted loss per share for the years ended December 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 years ended December 31, 2021 and 2020, as results of operations were a loss for the period. Potentially dilutive securities (See Note 14 and Note 15) excluded from the computation of basic and diluted net loss per share, as of December 31, 2021 and 2020, are as follows: 2021 2020 Warrants to purchase common stock 638,991 648,306 Options to purchase common stock 25,780,262 10,209,286 Totals 26,419,253 10,857,592 F- 13 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): December 31 December 31 2021 2020 (in thousands) Property and equipment, net: Land $ 7,911 $ 5,713 Construction in progress 41,921 2,800 Office furniture and equipment 756 385 Laboratory equipment 347 — Leasehold improvements 23 23 50,958 8,921 Less: Accumulated depreciation and amortization ( 400 ) ( 350 ) $ 50,558 $ 8,571 On October 1, 2021, the Company completed the acquisition of a research and development facility in Maryland totaling $ 17.5 million , to process development activities. Of the total purchase price, $ 2.1 million was allocated to the value of land acquired, and $ 13.9 million was allocated to construction in progress, as the building was not ready for its intended use, and approximately $ 1.5 million was allocated to Office furniture and equipment and Laboratory equipment. Of the $ 1.5 million , $ 1 .0 million is included in Construction in progress as those assets were not ready for their intended use. Additionally, we have incurred approximately $ 1.1 million in work-in-process, which is included in construction in progress as of December 31, 2021. As of December 31, 2021, the asset was operational, but the asset was not ready for its intended use. On September 28, 2020, the Company completed the purchase of its 40,000 square foot facility in Massachusetts for $ 4 .0 million, to house its new Advanced Development Center for the 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. Additionally, we have incurred approximately $ 22.8 million in work-in-process, which is included in construction in progress as of December 31, 2021. As of December 31, 2021, the asset the asset was not ready for its intended use. On December 23, 2020, the Company completed the purchase of its approximately 44 -acre site in Hamilton, Montana for $ 4.5 million , for the construction of a vaccine development and commercial scale manufacturing facility. As of December 31, 2021, the asset the asset was not ready for its intended use. F- 14 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – OTHER BALANCE SHEET INFORMATION Components of selected captions in the consolidated balance sheets consist of: December 31, 2021 2020 (in thousands) Prepaid expenses and other: Contract-related $ 7,726 $ 7,627 Insurance 1,482 1,634 Other 1,181 1,660 $ 10,389 $ 10,921 Accrued expenses and other current liabilities: Contract-related $ 2,832 $ 2,169 Compensation and compensation-related 2,868 2,005 Construction in progress 1,572 — Professional fees and other 673 452 $ 7,945 $ 4,626 F- 15 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 – 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 December 31, 2021, and December 31, 2020, the Company used Level 1 quoted prices in active markets to value cash equivalents of $ 120.4 million and $ 40.4 million , respectively. The Company did not have any Level 2 or Level 3 assets or liabilities as of both December 31, 2021 and 2020. NOTE 6 – 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 September 3, 2021, the Company received a letter (the “Notice”) 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 per share, as set forth in Nasdaq Listing Rule 55450(a)(1) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was initially provided with a 180 calendar day period, or until March 2, 2022, in which to regain compliance. In order to regain compliance with the Minimum Bid Price Requirement, the closing bid price of the Company’s common stock must be at least $ 1 per share for a minimum of ten consecutive business days during this 180 -day period. As the Company did not regain compliance within this 180 -day period, the Company requested and received an additional compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, and provided written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its common stock will be subject to delisting. On February 10, 2022, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 800,000,000 to 1,600,000,000 . F- 16 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 – 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 December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 8 – 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. As of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. F- 17 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – 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 . The $168,500 was previously recorded to research and development expenses in the statement of operations. 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 paid $ 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 December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 10 – LICENSE AGREEMENT WITH OYAGEN 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 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 paid a low-seven digit license fee to OyaGen, and issued to OyaGen and an affiliated entity an aggregate of 2,752,294 shares of the Company’s common stock, which are 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 shares were valued at $ 3 .0 million, which was recorded as research and development expense. The OyaGen License also provides for single-digit royalties and contingent milestone payments. As of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. F- 18 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 – 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 December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. NOTE 12 – 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 previously recorded to research and development expenses in the statement of operations. 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 December 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. F- 19 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company paid 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 previously recorded to research and development expenses. 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 December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement. F- 20 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 – SALE OF COMMON STOCK Purchase Agreement with Lincoln Park On December 3, 2021, the Company entered into a purchase agreement (the “Purchase Agreement with Lincoln Park”) and a registration rights agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the Purchase Agreement with Lincoln Park, Lincoln Park has agreed to purchase from the Company up to $ 80,000,000 of the Company’s common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement with Lincoln Park. Pursuant to the terms of the Lincoln Park Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement with Lincoln Park. Pursuant to the terms of the Purchase Agreement with Lincoln Park, at the time the Company signed the Purchase Agreement with Lincoln Park and the Lincoln Park Registration Rights Agreement, the Company issued 2,909,091 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement with Lincoln Park. The commitment shares were valued at $ 1.6 million and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase Agreement with Lincoln Park. No shares were sold during the year ended December 31, 2021, under the Purchase Agreement with Lincoln Park. Subsequent to December 31, 2021, the Company has sold 22 .0 million shares of common stock under the Purchase Agreement with Lincoln Park, for net proceeds of approximately $ 4.5 million . 2021 Lincoln Park Transaction On May 14, 2021, the Company entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement (the “2021 Registration Rights Agreement”) with Lincoln Park. Pursuant to the terms of the 2021 Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $ 80,000,000 of the Company’s common stock (subject to certain limitations) from time to time during the term of the 2021 Purchase Agreement. Pursuant to the terms of the 2021 Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the 2021 Purchase Agreement. Pursuant to the terms of the 2021 Purchase Agreement, at the time the Company signed the 2021 Purchase Agreement and the 2021 Registration Rights Agreement, the Company issued 1,280,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2021 Purchase Agreement. The commitment shares were valued at $ 1.6 million and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2021 Purchase Agreement. During the year ended December 31, 2021, the Company sold an aggregate of approximately 64.5 million shares of common stock under the 2021 Purchase Agreement, for gross proceeds of approximately $ 41.3 million . Under applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99 % of the shares of its common stock outstanding immediately prior to the execution of the 2021 Purchase Agreement (approximately 64.5 million shares) to Lincoln Park under the 2021 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of its common stock to Lincoln Park under the 2021 Purchase Agreement equals or exceeds a threshold amount. As the Company has issued approximately 64.5 million shares to Lincoln Park, during the year end December 31, 2021, under the 2021 Purchase Agreement at less than the threshold amount, the Company will not sell any additional shares under the 2021 Purchase Agreement without shareholder approval. F- 21 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 amount 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 $ 240 .0 million in at-the-market offerings (“ATM”) sales. 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. During the year ended December 31, 2021, the Company sold approximately 110.2 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 69.3 million . Subsequent to December 31, 2021, the Company has sold 15.6 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 4.3 million 2020 Lincoln Park Transaction On September 3, 2020, the Company entered into a purchase agreement (the “2020 Purchase Agreement”) and a registration rights agreement (the “2020 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the 2020 Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $ 30,000,000 of the Company’s common stock (subject to certain limitations) from time to time during the term of the 2020 Purchase Agreement. Pursuant to the terms of the 2020 Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the 2020 Purchase Agreement. Pursuant to the terms of the 2020 Purchase Agreement, at the time the Company signed the 2020 Purchase Agreement and the 2020 Registration Rights Agreement, the Company issued 600,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2020 Purchase Agreement. The commitment shares were valued at $ 498,000 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2020 Purchase Agreement. During the year ended December 31, 2020, the Company sold an aggregate of approximately 25.4 million shares of common stock under the 2020 Purchase Agreement, for gross proceeds of approximately $ 14.6 million . F- 22 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99 % of the shares of its common stock outstanding immediately prior to the execution of the 2020 Purchase Agreement (approximately 26 million shares) to Lincoln Park under the 2020 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of its common stock to Lincoln Park under the 2020 Purchase Agreement equals or exceeds a threshold amount. As the Company has issued approximately 26 million shares to Lincoln Park, during the year end December 31, 2020, under the 2020 Purchase Agreement at less than the threshold amount, the Company will not sell any additional shares under the 2020 Purchase Agreement without shareholder approval. July 2020 Financing On July 13, 2020, the Company entered into an underwriting agreement with AGP, relating to the issuance and sale of 20,940,000 shares of common stock, in a registered direct public offering (“the July 2020 Financing”). The public offering price for each share of common stock was $ 0.50 . The July 2020 Financing closed on July 15, 2020. AGP purchased the shares at a seven percent discount to the then current public price, for an aggregate discount of $ 0.7 million . The Company incurred other offering expenses of approximately $ 0.1 million . The Company received net proceeds of approximately $ 9.6 million , after deducting the underwriting discount and other offering expenses. 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. 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 . During August 2020, 2.2 million of the warrants issued in the February 2020 Financing, with an exercise price of $ 0.57 , were exercised for proceeds of approximately $ 1.3 million . F- 23 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS November 2019 Financing On November 14, 2019, 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 had an exercise price of $ 1.94 and expired 12 months from the date of issuance. The common warrants were 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 the Company’s securities were traded. 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 . 2019 Lincoln Park Transaction On August 20, 2019, the Company entered into a purchase agreement (the “2019 Purchase Agreement”) and a registration rights agreement (the “2019 Registration Rights Agreement”) with Lincoln Park. Pursuant to the terms of the 2019 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $ 15,000,000 of the Company’s common stock (subject to certain limitations) from time to time during the term of the 2019 Purchase Agreement. Pursuant to the terms of the 2019 Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the 2019 Purchase Agreement. Pursuant to the terms of the 2019 Purchase Agreement, at the time the Company signed the 2019 Purchase Agreement and the 2019 Registration Rights Agreement, the Company issued 35,529 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement. The commitment shares were valued at $ 200,000 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2019 Purchase Agreement. As a result of receiving stockholder approval on January 16, 2020, the Company may sell more than 19.9 % of its common stock outstanding pursuant to the 2019 Purchase Agreement without violating Nasdaq Marketplace Rules, including Rule 5635(d), requiring shareholder approval for the sale, issuance or potential issuance by an issuer of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value. During the year ended December 31, 2020, the Company sold an aggregate of approximately 464,471 shares of common stock under the 2019 Purchase Agreement, for gross proceeds of approximately $ 0.3 million . F- 24 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 – 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) stock appreciation rights (“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 December 31, 2021, 16,085,796 shares were available for future grants under the Amended and Restated 2020 Plan. F- 25 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS General A summary of the stock option activity and related information for the Plans for the years ended December 31, 2021, and 2020 is as follows: Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2019 109,036 $ 199.57 8.60 $ — Grants 10,100,250 $ 0.81 — — Exercised — — Forfeitures or expirations — — Outstanding at December 31, 2020 10,209,286 $ 2.93 9.26 $ 131,558 Grants 15,572,190 $ 1.28 — $ — Exercised — — Forfeitures or expirations ( 1,214 ) $ 2,155.81 Outstanding at December 31, 2021 25,780,262 $ 1.83 8.83 $ — Exercisable at December 31, 2021 5,747,787 $ 3.91 8.21 $ — 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 grant date fair value of options granted during the years ended December 31, 2021 and 2020, was $ 1.06 and $ 0.66 per share, respectively. 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 year ended December 31, 2021 and 2020 were as follows: 2021 2020 Risk-free interest rate 0.79 % to 1.63 % 0.36 % to 1.25 % Expected term of option 5.5 to 6 years 5.5 to 6 years Expected stock price volatility 124.37 % to 137.73 % 120.62 % to 129.29 % 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. F- 26 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENT Stock-based compensation expense relating to options granted of $ 7.9 million , of which $ 5.5 million and $ 2.4 million , related to General and Administration and Research and Development, respectively was recognized for the year ended December 31, 2021. Stock-based compensation expense relating to options granted of $ 2.9 million , of which $ 2 .0 million and $ 0.9 million , related to General and Administration and Research and Development, respectively was recognized for the year ended December 31, 2020. As of December 31, 2021, the Company had approximately $ 14.2 million of unrecognized compensation cost related to non-vested awards granted under the Plans, which the Company expects to recognize over a weighted average period of 1.91 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 December 31, 2021, 7 shares were available for future sales under the 2020 ESPP. The 2020 and 2019 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the year ended December 31, 2021, and 2020, $ 89,000 and $ 23,000 , respectively, was 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. In July 2021, 116,505 shares that were purchased as of June 30, 2021, under the 2020 ESPP, were issued. Accordingly, during July 2021, approximately $ 68,000 of employee payroll deductions accumulated at June 30, 2021, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $ 7,000 was returned to the employees. In January 2022, 129,041 shares that were purchased as of December 31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2022, approximately $ 40,000 of employee payroll deductions accumulated at December 31, 2021, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $ 30,000 was returned to the employees. F- 27 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 – WARRANTS TO PURCHASE COMMON STOCK The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at December 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 638,991 During the year ended December 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 year ended December 31, 2021, 5,441 and 474 warrants with a per share exercise price of $ 630 and $ 687.50 , respectively, expired. During the year ended December 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 year ended December 31, 2020, 2.3 million warrants from the November 2019 financing, with an exercise price of $ 0.50 , were exercised for proceeds of approximately $ 1.2 million . During the year ended December 31, 2020, 13 .0 million warrants from the February 2020 financing, with an exercise price of $ 0.57 , were exercised for proceeds of approximately $ 7.5 million . During the year ended December 31, 2020, 2,500 warrants with a per share exercise price of $ 0.50 expired. F- 28 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 – 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 December 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 $ 0.5 million is included in long-term lease liabilities and $ 0.5 million is included in current lease liabilities. At December 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, 2022 $ 511 2023 169 2024 145 2025 150 975 Included interest ( 19 ) $ 956 During the year ended December 31, 2021, the Company entered into lease amendments, resulting in the Company recognizing an operating lease liability of approximately $ 467,000 based on the present value of the future minimum rental payments. The Company also recognized corresponding ROU assets of approximately $ 467,000 . During the year ended December 31, 2020, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing an additional operating lease liability of approximately $ 1.4 million based on the present value of the minimum rental payments. The Company also recognized a corresponding increase to ROU assets of approximately $ 1.4 million . Operating lease expense was $ 0.6 and $ 0.5 million for the years ended December 31, 2021 and 2020, respectively. Other information related to leases was as follows: Cash paid for amounts included in the measurement of lease liabilities: December 31, 2021 December 31, 2020 Operating cash flow from operating leases (in thousands) $ 632 $ 540 Weighted Average Remaining Lease Term Operating leases 2.71 years 3.27 years Weighted Average Discount Rate Operating leases 1.34 % 1.42 % F- 29 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 – COMMITMENTS Contractual agreements The Company has entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $ 47.9 million at December 31, 2021 for future work to be performed. The Company entered into a construction contract with outstanding commitments aggregating approximately $ 30.1 million at December 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. The purchase is expected to close during the second quarter of 2022. Defined contribution plan The Company has 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. The Company charged operations $ 0.4 million and $ 0.1 million for the year ended December 31, 2021, and 2020, respectively, for contributions under the 401(k) Plan. NOTE 18 – INCOME TAXES Components of the net loss consist of the following (in thousands): Year ended December 31, 2021 2020 Foreign $ ( 73,689 ) $ ( 41,155 ) Domestic ( 18,598 ) ( 9,308 ) Total $ ( 92,287 ) $ ( 50,463 ) In 2021, the foreign losses are comprised of $ 71.9 million related to the Irish operations and $ 1.8 million related to the Bermudan operations of Tonix International Holding. In 2020, the foreign losses were primarily comprised of $ 40.4 million related to the Bermudan operations of Tonix International Holding. A reconciliation of the effect of applying the federal statutory rate to the net loss and the effective income tax rate used to calculate the Company’s income tax provision is as follows: Year Ended December 31, 2021 2020 Statutory federal income tax ( 21.0 )% ( 21.0 )% Change in valuation allowance 15.0 % 3.9 % Foreign loss not subject to income tax 7.0 % 16.9 % Attribute reduction from control change ( 1.2 )% 0.3 % Other 0.2 % ( 0.1 )% Income Tax Provision 0.0 % 0.0 % F- 30 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets (liabilities) and related valuation allowance as of December 31, 2021 and 2020 were as follows (in thousands): December 31, 2021 2020 Deferred tax assets/(liabilities): Net operating loss carryforward $ 13,297 $ 2,193 Stock-based compensation 5,832 3,662 Other 2,285 220 Total deferred assets 21,414 6,075 Valuation allowance ( 21,414 ) ( 6,075 ) Net deferred tax assets $ — $ — The Company has incurred research and development (“R&D”) expenses, a portion of which qualifies for tax credits. The Company conducted an R&D credit study to quantify the amount of credits and has claimed an R&D credit on its 2014-2017 tax returns. A portion of these R&D credit carryforwards are subject to annual limitations in their use in accordance with Internal Revenue Service Code (“IRC”) section 383. The R&D credit carryforwards at December 31, 2021 have been reduced to $ 0 .0 million to reflect IRC section 383 ownership changes through December 31, 2021 and the resulting inability to utilize a portion of the R&D credit prior to its expiration. At December 31, 2021, the Company has $ 66.4 million of Ireland NOL carryforwards that do not expire. At December 31, 2021, the Company has NOL carryforwards of $ 21 .0 million, which do not expire, but their utilization is limited to 80 % of taxable income. Additionally, a portion of the federal NOL carryforward is subject to annual limitation in their use in accordance with IRC section 382. As of December 31, 2021, the Company’s Federal NOL carryforwards of $ 12.9 million have an annual limitation of $ 2.4 million , and $ 8.6 million are not subject to limitations. At December 31, 2021, the Company has New Jersey NOL carryforwards of $ 6.6 million , which expire in 20 years , are subject to annual limitations in their use in accordance with IRC section 382. The New Jersey NOL carryforwards at December 31, 2021 have been reduced to reflect IRC section 382 ownership changes through December 31, 2021 and resultant inability due to annual limitations, to utilize a portion of the NOL prior to its expiration. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. As such, the Company has determined that it is not more likely than not that the deferred tax assets will be realized and accordingly, has provided a full valuation allowance against its gross deferred tax assets. The increase in the valuation allowance for the years ended December 31, 2021 and 2020 were $ 15.3 million , and $ 2.2 million respectively. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. However, as of December 31, 2021 there are no unrecognized tax benefits recorded. The Company is subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2021, the Company’s tax returns remain open and subject to examination by the tax authorities for the tax years 2018 and after. F- 31 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 – SUBSEQUENT EVENTS On February 15, 2022, the Company granted options to purchase an aggregate of 15,480,690 shares of the Company’s common stock to employees with an exercise price of $ 0.21 , with a term of ten years , vesting 1/3 on the first anniversary and 1/36th each month thereafter for 24 months. Additionally, the Company granted options to purchase 24,750,000 shares of the Company’s common stock to certain employees with 10 % of such options vesting on the first anniversary of issuance, 10 % on the second anniversary of issuance, 40 % on the third anniversary of issuance, and 40 % on the fourth anniversary of issuance, and expiring 10 years from the date of issuance. One-third of the stock options granted have an exercise price per share of $ 0.414 ; one-third of the stock options granted have an exercise price per share of $ 0.621 ; and one-third of the stock options granted have an exercise price per share of $ 0.828 . On February 10, 2022, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 800,000,000 to 1,600,000,000 . Subsequent to December 31, 2021, the Company sold 15.6 million shares of common stock under the Sales Agreement with AGP for net proceeds of approximately $ 4.3 million . Subsequent to December 31, 2021, the Company sold 22 .0 million shares of common stock under the Purchase Agreement with Lincoln Park for net proceeds of approximately $ 4.5 million . F- 32 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.