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, 2022 and 2021 F-4 Consolidated statements of operations for the years ended December 31, 2022 and 2021 F-5 Consolidated statements of comprehensive loss for the years ended December 31, 2022 and 2021 F-6 Consolidated statements of stockholders’ equity for the years ended December 31, 2022 and 2021 F-7 – F-8 Consolidated statements of cash flows for the years ended December 31, 2022 and 2021 F-9 Notes to consolidated financial statements F-10 – F-24 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, 2022 and 2021, 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 the Company as of December 31, 2022 and 2021, 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 The critical audit matter communicated below is a matter arising from the current period audit of the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrual and prepaid balance 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 $3.3 million is included in accrued expenses and other current liabilities in the December 31, 2022 consolidated balance sheet. The Company also recorded prepaid clinical trial expenses of approximately $8.0 million within prepaid expenses and other in the December 31, 2022 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 by comparing current expenses to prior-period expenses to identify unusual fluctuations, if any. We have served as the Company’s auditor since 2010 EISNERAMPER LLP Iselin, New Jersey March 13, 2023 F- 3 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2022 AND 2021 (In Thousands, Except Par Value and Share Amounts) 2022 2021 ASSETS Current assets: Cash and cash equivalents $ 120,229 $ 178,660 Prepaid expenses and other 10,548 10,389 Total current assets 130,777 189,049 Property and equipment, net 93,814 50,558 Operating lease right-to-use assets 715 914 Other non-current assets 384 379 Total assets $ 225,690 $ 240,900 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 8,068 $ 13,282 Accrued expenses and other current liabilities 9,680 7,945 Lease liability, short term 432 489 Total current liabilities 18,180 21,716 Lease liability, long term 328 467 Total liabilities 18,508 22,183 Commitments (See Note 20) Stockholders’ equity: Preferred stock, $ 0.001 par value; 5,000,000 shares authorized Series B Convertible Preferred stock, 0 shares designated as of both December 31, 2022 and 2021; issued and outstanding - None — — Series A Convertible Preferred stock, 0 shares designated as of both December 31, 2022 and 2021; issued and outstanding - None — — Common stock, $ 0.001 par value; 1,000,000,000 and 25,000,000 shares authorized as of December 31, 2022 and 2021, respectively; 76,478,656 and 15,638,274 shares issued and outstanding as of December 31, 2022 and 2021, respectively and 93,741 and 4,033 shares to be issued as of December 31, 2022 and December 31, 2021, respectively 76 16 Additional paid in capital 677,311 578,613 Accumulated deficit ( 470,038 ) ( 359,820 ) Accumulated other comprehensive loss ( 167 ) ( 92 ) Total stockholders’ equity 207,182 218,717 Total liabilities and stockholders’ equity $ 225,690 $ 240,900 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, 2022 2021 COSTS AND EXPENSES: Research and development $ 81,876 $ 68,838 General and administrative 30,215 23,474 112,091 92,312 Operating loss ( 112,091 ) ( 92,312 ) Interest income 1,873 25 Net loss ( 110,218 ) ( 92,287 ) Preferred stock deemed dividend 6,659 — Net loss available to common stockholders $ ( 116,877 ) $ ( 92,287 ) Net loss per common share, basic and diluted $ ( 3.27 ) $ ( 8.10 ) Weighted average common shares outstanding, basic and diluted 35,739,057 11,387,308 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, 2022 2021 Net loss $ ( 110,218 ) $ ( 92,287 ) Other comprehensive loss: Foreign currency translation loss ( 75 ) ( 30 ) Comprehensive loss $ ( 110,293 ) $ ( 92,317 ) 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 Additional Other Common stock Paid in Comprehensive Accumulated Shares Amount Capital Income (loss) Deficit Total Balance, December 31, 2021 15,638,274 $ 16 $ 578,613 $ ( 92 ) $ ( 359,820 ) $ 218,717 Issuance of common stock under At-the-market offering, net of transactional expenses of $ 3,078 56,357,869 56 85,237 — — 85,293 Issuance of common stock under 2022 Purchase Agreement 1,000,000 1 487 — — 488 Issuance of common stock under 2021 Purchase Agreement 2,853,480 3 8,679 — — 8,682 Issuance of commitment shares under 2022 Purchase agreement 625,000 — — — — — Preferred stock deemed dividend — — ( 6,659 ) — — ( 6,659 ) Employee stock purchase plan 4,033 — 40 — — 40 Stock-based compensation — — 10,914 — — 10,914 Foreign currency transaction loss — — — ( 75 ) — ( 75 ) Net loss — — — — ( 110,218 ) ( 110,218 ) Balance, December 31, 2022 76,478,656 $ 76 $ 677,311 $ ( 167 ) $ ( 470,038 ) $ 207,182 See the accompanying notes to the consolidated financial statements F- 7 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands, Except Share and Per Share Amounts) Accumulated Additional Other Common stock Paid in Comprehensive Accumulated Shares Amount Capital Income (loss) Deficit Total Balance, December 31, 2020 6,568,335 $ 6 $ 355,237 $ ( 62 ) $ ( 267,533 ) $ 87,648 Issuance of common stock in January 2021 ($ 25.60 per share), net of transactional expenses of $ 3,096 1,562,500 2 36,902 — — 36,904 Issuance of common stock in exchange for exercise of warrants in March 2021 ($ 18.24 per share) 107 — 2 — — 2 Issuance of common stock in February 2021 ($ 38.40 per share), net of transactional expenses of $ 5,002 1,822,917 2 64,995 — — 64,997 Issuance of common stock under At-the-market offering, net of transactional expenses of $ 2,332 3,445,297 4 69,288 — — 69,292 Issuance of common stock under 2021 Purchase Agreement, net of transactional expenses of $ 75 2,016,855 2 41,194 — — 41,196 Issuance of commitment shares under 2021 Purchase agreement 40,000 — — — — — Issuance of common stock in the acquisition of the OyaGen license 86,010 — 3,000 — — 3,000 Issuance of commitment shares under Lincoln park Purchase agreement 90,909 — — — — — Employee stock purchase plan 5,344 — 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 15,638,274 $ 16 $ 578,613 $ ( 92 ) $ ( 359,820 ) $ 218,717 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, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 110,218 ) $ ( 92,287 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,253 50 Common stock issued to acquire in-process research and development — 3,000 Stock-based compensation 10,914 7,899 Changes in operating assets and liabilities: Prepaid expenses ( 164 ) 518 Accounts payable ( 1,045 ) 3,526 Lease liabilities and ROU asset, net 2 ( 11 ) Accrued expenses and other current liabilities 1,205 1,748 Net cash used in operating activities ( 98,053 ) ( 75,557 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 48,147 ) ( 35,307 ) Net cash used in investing activities ( 48,147 ) ( 35,307 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of warrants — 2 Proceeds from ESPP 40 96 Proceeds, net of $ 6,659 expenses, from sale of convertible redeemable preferred stock 40,591 — Redemption of convertible redeemable preferred stock ( 47,250 ) — Proceeds, net of $ 3,078 and $ 10,505 expenses, from sale of common stock and warrants 94,463 212,389 Net cash provided by financing activities 87,844 212,487 Effect of currency rate change on cash ( 74 ) ( 31 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 58,430 ) 101,592 Cash, cash equivalents and restricted cash beginning of the period 178,900 77,308 Cash, cash equivalents and restricted cash end of period $ 120,470 $ 178,900 Supplemental disclosures of cash flow information: Purchases of property and equipment included in accounts payable and accrued liabilities $ 3,092 $ 6,730 Preferred stock deemed dividend $ 6,659 $ — 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 vaccines to treat and prevent human disease and alleviate suffering. The therapeutics include both small molecules and biologics. All drug product and vaccine candidates are still in development and none are approved or marketed. 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, 2022, the Company had working capital of approximately $ 112.6 million. At December 31, 2022, the Company had an accumulated deficit of approximately $ 470.0 million . The Company held cash and cash equivalents of approximately $ 120.2 million as of December 31, 2022. The Company believes that its cash resources at December 31, 2022 and the proceeds that it raised from equity offerings in the first quarter of 2023, net of amounts paid to repurchase shares in the first quarter of 2023 (See Note 22), will meet its operating and capital expenditure requirements into the fourth quarter of 2023, but not beyond. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company faces 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 believes that it 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, the Company’s ability to achieve its development and commercialization goals would be adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Reverse Stock Split On May 16, 2022, the Company filed a Certificate of Change with the Nevada Secretary of State, effective May 17, 2022. Pursuant to the Certificate of Change, the Company effected a 1-for-32 reverse stock split of its issued and outstanding shares of common stock. The Company accounted for the reverse stock split on a retrospective basis pursuant to ASC 260, Earnings Per Share. All authorized, issued and outstanding common stock, common stock warrants, stock option awards, exercise prices and per share data have been adjusted in these consolidated financial statements, on a retroactive basis, to reflect the reverse stock split for all periods presented. Authorized preferred stock was not adjusted because of the reverse stock split. 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, 2022 and December 31, 2021, cash equivalents, which consisted of money market funds, amounted to $ 116.3 million and $ 120.4 million, respectively. Restricted cash, which is included in Other non-current assets on the consolidated balance sheet at December 31, 2022 and December 31, 2021 of approximately $ 241,000 and $ 240,000 , respectively, collateralizes a letter of credit issued in connection with the lease of office space in Chatham, New Jersey and New York City (see Note 19). 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: F- 10 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022 December 31, 2021 (in thousands) Cash and cash equivalents $ 120,229 $ 178,660 Restricted cash 241 240 Total $ 120,470 $ 178,900 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 ranges from 20 to 30 years for buildings, 15 years for land improvements, 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 available for its intended use. Depreciation and amortization expense for the years ended December 31, 2022, and 2021 was $ 1,253,000 and $ 50,000 , 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, which are included in Other non-current assets on the consolidated balance sheet, 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, 2022, and 2021, the Company believed that no impairment existed. Leases The Company determines if an arrangement is, or contains, a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, lease liability, short term and lease liability, long term 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. Convertible Preferred Stock Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity (“mezzanine”) until such time as the conditions are removed or lapse. 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 is 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. Government Grants From time to time, the Company may enter into arrangements with governmental entities for the purpose of obtaining funding for research and development activities. The Company is reimbursed for costs incurred that are associated with specified research and development activities included in the grant application approved by the government authority. The Company classifies government grants received under these arrangements as a reduction to the related research and development expense in the same period as the relevant expenses are incurred. In August 2022, the Company announced that it received a Cooperative Agreement grant from the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, to support the development of its TNX-1300 product candidate for the treatment of cocaine intoxication. No funding was received during 2022. F- 11 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. 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, 2022, 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. Per Share Data The computation of basic and diluted loss per share for the years ended December 31, 2022 and 2021 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, 2022 and 2021, as results of operations were a loss for the period. Potentially dilutive securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2022 and 2021, are as follows: 2022 2021 Warrants to purchase common stock 19,970 19,970 Options to purchase common stock 2,453,031 805,762 Totals 2,473,001 825,732 Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The Company will adopt ASU 2020-06 on January 1, 2023, under the modified retrospective method of transition. The Company does not anticipate the adoption of ASU 2020-06 to impact the Company’s financial position, results of operations or cash flows. F- 12 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 2022 2021 (in thousands) Property and equipment, net: Land $ 8,011 $ 7,911 Land improvements 79 — Buildings 65,644 — Office furniture and equipment 1,893 756 Laboratory equipment 18,440 347 Leasehold improvements 34 23 Construction in progress 1,366 41,921 95,467 50,958 Less: Accumulated depreciation and amortization ( 1,653 ) ( 400 ) $ 93,814 $ 50,558 On October 1, 2021, the Company completed the acquisition of its approximately 45,000 square foot research and development facility in Frederick, 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 buildings, and approximately $ 1.5 million was allocated to Office furniture and equipment and Laboratory equipment. During the year ended December 31, 2022, the assets became ready for the intended use and were placed in service. On September 28, 2020, the Company completed the purchase of its approximately 45,000 square foot facility in Dartmouth, 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 buildings. Additionally, the Company incurred approximately $ 38.8 million of costs during the year ended December 31, 2022, bringing total costs incurred-to-date to $ 61.6 million, of which the majority relates to the build-out of the facility. During the year ended December 31, 2022, the assets became ready for the intended use and were placed in service. 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, 2022, the asset was not ready for its intended use. NOTE 4 – OTHER BALANCE SHEET INFORMATION Components of selected captions in the consolidated balance sheets consist of: December 31, 2022 2021 (in thousands) Prepaid expenses and other: Contract-related $ 8,043 $ 7,726 Insurance 1,275 1,482 Other 1,230 1,181 $ 10,548 $ 10,389 Accrued expenses and other current liabilities: Contract-related $ 3,273 $ 2,832 Compensation and compensation-related 3,645 2,868 Construction in progress 2,103 1,572 Professional fees and other 659 673 $ 9,680 $ 7,945 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. F- 13 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2022, and December 31, 2021, the Company used Level 1 quoted prices in active markets to value cash equivalents of $ 116.3 million and $ 120.4 million, respectively. The Company did not have any Level 2 or Level 3 assets or liabilities as of both December 31, 2022 and 2021. NOTE 6 – STOCKHOLDERS’ EQUITY On May 16, 2022, the Company filed a Certificate of Change with the Nevada Secretary of State, effective May 17, 2022. Pursuant to the Certificate of Change, the Company effected a 1-for-32 reverse stock split of its issued and outstanding shares of common stock, whereby 599,679,596 outstanding shares of the Company’s common stock were exchanged for 18,740,141 shares of the Company’s common stock. In connection with the reverse stock split, the Company issued an additional 130,462 shares of the Company’s common stock due to fractional shares. Furthermore, pursuant to the Certificate of Change, the number of authorized shares of common stock was reduced from 800 million to 50 million. All per share amounts and number of shares in the consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock split. On August 5, 2022, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 50,000,000 to 150,000,000 . On December 13, 2022, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 150,000,000 to 1,000,000,000 . NOTE 7 – TEMPORARY EQUITY On October 26, 2022, the Company closed on an offering (“the October offering”) with certain institutional investors (the “Investors”), pursuant to which the Company issued and sold, in a private placement, 1,400,000 shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $ 0.001 per share (the “Series A Preferred Stock”), and 100,000 shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of $ 9.50 per share, representing a 5 % original issue discount (“OID) to the stated value of $ 10.00 per share, for gross proceeds of $ 14.3 million in the aggregate for the October offering, before the deduction of fees and offering expenses. The shares of Preferred Stock were convertible, at a conversion price of $ 1.00 per share (subject in certain circumstances to adjustments), into shares of the Company’s common stock, at the option of the holders and, in certain circumstances, by the Company. On December 13, 2022, an amendment (the “December Amendment”) to the Company’s Articles of Incorporation, as amended, to increase the Company’s authorized shares of common stock from 150,000,000 to 1,000,000,000 , was approved at a special meeting of shareholders. The Series A Preferred Stock had the right to vote on such December Amendment on an as-converted to common stock basis. The shares of the Series B Preferred Stock were automatically voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted) and Series A Preferred Stock were voted to increase the Authorized Shares. The December Amendment required the approval of the majority of the votes associated with the Company’s outstanding stock entitled to vote on the proposal. Because the Series B Preferred Stock were automatically and without further action of the purchaser voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted) and Series A Preferred Stock were voted on the December Amendment, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series B Preferred Stock. The Certificates of Designation for the Preferred Stock provides that the Preferred Stock have no voting rights other than the right to vote on the December Amendment and as a class on certain other specified matters , and, with respect to the Series B Certificate of Designation, the right to cast 2,500 votes per share of Series B Preferred Stock on the December Amendment . The holders of Preferred Stock were entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of Common Stock. The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $ 1.00 per share. The holders of the Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash at 105 % of the stated value of such shares through January 23, 2023. The Company had the option to redeem the Preferred Stock for cash at 105 % of the stated value, subject to the holders’ rights to convert the shares prior to such redemption. F- 14 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The $ 14.3 million in gross proceeds of the October offering was held in an escrow account, along with an additional $ 1.5 million deposited by the Company to cover the aggregate OID as well as the additional amount that would be necessary to fund the 105 % redemption price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming holders. Upon expiration of the redemption period, any proceeds remaining in the escrow account would be disbursed to the Company. Since the Preferred Stock had a redemption feature at the option of the holder, it was classified as temporary equity. The Series A Preferred Stock and Series B Preferred Stock was recorded at redemption value of approximately $ 14.7 million and $ 1.1 million, respectively, as calculated in the following table (in thousands): Series A Preferred Stock Series B Preferred Stock Gross Proceeds $ 13,300 $ 950 Less: Preferred stock issuance costs ( 844 ) ( 60 ) Plus: Accretion of carrying value to redemption value 2,244 160 Preferred stock subject to possible redemption $ 14,700 $ 1,050 During December 2022, the Company received redemption notices for all outstanding shares of Preferred Stock. The Preferred Stock was redeemed during December 2022 at 105 % of the $ 10.00 stated value of the Preferred Stock, or $ 15.8 million in the aggregate. On June 24, 2022, the Company closed on an offering (“the Offering”) with certain institutional investors (the “Investors”), pursuant to which the Company issued and sold, in a private placement, 2,500,000 shares of the Company’s Series A Convertible Redeemable Preferred Stock, par value $ 0.001 per share (the “Series A Preferred Stock”), and 500,000 shares of the Company’s Series B Convertible Redeemable Preferred Stock, par value $ 0.001 per share (the “Series B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of $ 9.50 per share, representing a 5 % original issue discount (“OID) to the stated value of $ 10.00 per share, for gross proceeds of $ 28.5 million in the aggregate for the Offering, before the deduction of fees and offering expenses. The shares of Preferred Stock were convertible, at a conversion price of $ 4.00 per share (subject in certain circumstances to adjustments), into shares of the Company’s common stock, at the option of the holders and, in certain circumstances, by the Company. On August 5, 2022, an amendment (the “Amendment”) to the Company’s Articles of Incorporation, as amended, to increase the Company’s authorized shares of common stock from 50,000,000 to 150,000,000 , was approved at a special meeting of shareholders. The Series A Preferred Stock had the right to vote on such Amendment on an as-converted to common stock basis. The shares of the Series B Preferred Stock were automatically voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted) and Series A Preferred Stock were voted to increase the Authorized Shares. The Amendment required the approval of the majority of the votes associated with the Company’s outstanding stock entitled to vote on the proposal. Because the Series B Preferred Stock were automatically and without further action of the purchaser voted in a manner that “mirrored” the proportions on which the shares of Common Stock (excluding any shares of Common Stock that were not voted) and Series A Preferred Stock were voted on the Amendment, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series B Preferred Stock. The Certificates of Designation for the Preferred Stock provides that the Preferred Stock have no voting rights other than the right to vote on the Amendment and as a class on certain other specified matters , and, with respect to the Series B Certificate of Designation, the right to cast 2,500 votes per share of Series B Preferred Stock on the Amendment . The holders of Preferred Stock were entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of Common Stock. The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $ 4.00 per share. The holders of the Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash at 105 % of the stated value of such shares through September 22, 2022. The Company had the option to redeem the Preferred Stock for cash at 105 % of the stated value, subject to the holders’ rights to convert the shares prior to such redemption. The $ 28.5 million in gross proceeds of the Offering was held in an escrow account, along with an additional $ 3 .0 million deposited by the Company to cover the aggregate OID as well as the additional amount that would be necessary to fund the 105 % redemption price until the expiration of the redemption period for the Preferred Stock, as applicable, subject to the earlier payment to redeeming holders. Upon expiration of the redemption period, any proceeds remaining in the escrow account would be disbursed to the Company. Since the Preferred Stock had a redemption feature at the option of the holder, it was classified as temporary equity. The Series A Preferred Stock and Series B Preferred Stock was recorded at redemption value of approximately $ 26.3 million and $ 5.2 million, respectively, as calculated in the following table (in thousands): Series A Preferred Stock Series B Preferred Stock Gross Proceeds $ 23,750 $ 4,750 Less: Preferred stock issuance costs ( 1,046 ) ( 209 ) Plus: Accretion of carrying value to redemption value 3,546 709 Preferred stock subject to possible redemption $ 26,250 $ 5,250 During August 2022, the Company received redemption notices for all outstanding shares of Preferred Stock. The Preferred Stock was redeemed during August 2022 at 105 % of the $ 10.00 stated value of the Preferred Stock, or $ 31.5 million in the aggregate. F- 15 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – 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 U.S. Food and Drug Administration (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, 2022, no milestone payments have been accrued or paid in relation to this agreement. NOTE 9 – 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 62,500 shares of the Company’s common stock, valued at $ 21.76 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, 2022, other than the annual maintenance fee, no milestone payments have been accrued or paid in relation to this agreement. NOTE 10 – 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 subsequently amended. 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 Our 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. F- 16 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2022, no milestone payments have been accrued or paid in relation to this agreement. NOTE 11 – LICENSE AGREEMENT WITH CURIA On December 12, 2022, the Company entered into an exclusive license agreement with Curia for the development of three humanized murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection. We believe that the licensing of these mAbs strengthens our pipeline of next-generation therapeutics to treat COVID-19, which is caused by SARS-CoV-2. As consideration for entering into the License Agreement, we paid a license fee of approximately $ 0.4 million to Curia. The License Agreement also provides for single-digit royalties and contingent milestone payments. As of December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement. NOTE 12 – LICENSE AGREEMENT WITH UNIVERSITY OF ALBERTA On May 18, 2022, the Company entered into an exclusive License Agreement with the University of Alberta focused on identifying and testing broad-spectrum antiviral drugs against future variants of SARS-CoV-2 and other emerging viruses. As consideration for entering into the License Agreement, Tonix paid a low-five digit license fee to University of Alberta. The License Agreement also provides for single-digit royalties and contingent milestone payments. As of December 31, 2022, other than the upfront fee, no milestone payments have been accrued or paid in relation to this agreement. NOTE 13 – 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 86,010 shares of the Company’s common stock. The shares were valued at $ 3 .0 million, which was recorded as research and development expense. The OyaGen License also provided for single-digit royalties and contingent milestone payments. In July 2022, the Company notified OyaGen of its intent to terminate the OyaGen License Agreement, and the agreement was terminated effective September 20, 2022. NOTE 14 – 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, 2022, no milestone payments have been accrued or paid in relation to this agreement. NOTE 15 – 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”), as subsequently amended, pursuant to which Columbia granted to Tonix an exclusive license, with the right to sublicense, certain patents and technical information (collectively, the “TFF2 Technology”) related to a recombinant Trefoil Family Factor 2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2 Product”). Pursuant to the terms of the Columbia License Agreement, Columbia reserved for itself the right to practice the TFF2 Technology for academic research and educational purposes. The Company paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research and development expenses in the statement of operations for the year ended December 31, 2019. The Company is obligated to use Commercially Reasonable Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified developmental milestones. F- 17 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company is obligated 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, 2022, no milestone payments have been accrued or paid in relation to this agreement. On May 20, 2019, the Company entered into an exclusive License Agreement (the “License Agreement”) with Columbia pursuant to which Columbia, for itself and on behalf of the University of Kentucky and the University of Michigan (collectively, the “Institutions”) granted to the Company an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”) related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”). Pursuant to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the Technology for academic research and educational purposes. The Company 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 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, 2022, no milestone payments have been accrued or paid in relation to this agreement. NOTE 16 – SALE OF COMMON STOCK 2022 Lincoln Park Transaction On August 16, 2022, the Company entered into a purchase agreement (the “2022 Purchase Agreement”) and a registration rights agreement (the “2022 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the 2022 Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $ 50,000,000 of the Company’s common stock (subject to certain limitations) from time to time during the term of the 2022 Purchase Agreement. Pursuant to the terms of the 2022 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 2022 Purchase Agreement. Pursuant to the terms of the 2022 Purchase Agreement, at the time the Company signed the 2022 Purchase Agreement and the 2022 Registration Rights Agreement, the Company issued 625,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of the Company’s common stock under the 2022 Purchase Agreement. The commitment shares were valued at $ 1,000,000 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 2022 Purchase Agreement. During the year ended December 31, 2022, the Company sold 1 .0 million shares of common stock under the 2022 Purchase Agreement, for net proceeds of approximately $ 0.5 million. Subsequent to December 31, 2022, the Company sold 0.6 million shares of common stock under the 2022 Purchase Agreement with Lincoln Park for net proceeds of approximately $ 0.4 million. F- 18 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 90,910 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. During the year ended December 31, 2022, the Company sold 2.9 million shares of common stock under the Purchase Agreement with Lincoln Park, for net proceeds of approximately $ 8.7 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 Purchase Agreement with Lincoln Park (approximately 2.9 million shares) to Lincoln Park under the Purchase Agreement with Lincoln Park without stockholder approval, unless the average price of all applicable sales of its common stock to Lincoln Park under the Purchase Agreement with Lincoln Park equals or exceeds a threshold amount. As the Company has issued approximately 2.9 million shares to Lincoln Park, by December 31, 2022, under the Purchase Agreement with Lincoln Park at less than the threshold amount, the Company will not sell any additional shares under the Purchase Agreement with Lincoln Park without shareholder approval. 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 Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the 2021 Purchase Agreement, Lincoln Park 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 40,000 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 2 .0 million shares of common stock under the 2021 Purchase Agreement, for gross proceeds of approximately $ 41.3 million. During the year ended December 31, 2022, no shares of common stock were sold under the 2021 Purchase Agreement. 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 2 .0 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 20121 Purchase Agreement equals or exceeds a threshold amount. As the Company has issued approximately 2 .0 million shares to Lincoln Park 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. 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 1.8 million 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 $ 38.40 . 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 1.6 million 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 $ 25.60 . 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. F- 19 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 $ 320 .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, 2022, the Company sold approximately 56.4 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 85.3 million. During the year ended December 31, 2021, the Company sold approximately 3.5 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 69.3 million. Subsequent to December 31, 2022, the Company has sold 2.1 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 1.4 million. NOTE 17 – 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 4,375 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 18,750 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 312,500 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 31 st 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, 2022, 627,744 options were available for future grants under the Amended and Restated 2020 Plan. A summary of the stock option activity and related information for the Plans for the years ended December 31, 2022, and 2021 is as follows: Shares Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2020 319,179 $ 2.93 9.26 $ 131,558 Grants 486,639 $ 40.85 — — Exercised — — Forfeitures or expirations ( 56 ) 149,713.14 Outstanding at December 31, 2021 805,762 $ 78.02 8.83 $ — Grants 1,695,608 $ 12.06 — $ — Exercised — — Forfeitures or expirations ( 48,339 ) $ 255.40 Outstanding at December 31, 2022 2,453,031 $ 28.93 8.70 $ — Exercisable at December 31, 2022 590,582 $ 70.82 7.64 $ — 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, 2022 and 2021, was $ 5.25 and $ 33.78 per share, respectively. F- 20 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 1/36 th 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, 2022 and 2021 were as follows: 2022 2021 Risk-free interest rate 1.67 % to 3.05 % 0.79 % to 1.63 % Expected term of option 5.5 to 10 years 5.5 to 6 years Expected stock price volatility 120.32 % - 133.22 124.37 % to 137.73 % Expected dividend yield 0.0 0.0 % The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on the Company’ historical stock price volatility. Stock-based compensation expense relating to options granted of $ 10.9 million, of which $ 7.9 million and $ 3 .0 million, related to General and Administration and Research and Development, respectively was recognized for the year ended December 31, 2022. 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. As of December 31, 2022, the Company had approximately $ 11.6 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 1.73 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”). No further grants may be made under the 2020 ESPP Plan. On May 6, 2022, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2022 Employee Stock Purchase Plan (the “2022 ESPP”, and together with the 2019 ESPP and the 2020 ESPP, the “ESPP Plans”)). The 2022 ESPP allows eligible employees to purchase up to an aggregate of 93,750 shares of the Company’s common stock. Under the 2022 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 2022 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 2022 ESPP, subject to the statutory limit under the Code. As of December 31, 2022, 9 shares were available for future sales under the 2022 ESPP. The 2022 and 2020 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the year ended December 31, 2022 and 2021, $ 46,000 and $ 89,000 , respectively were expensed. In January 2021, 1,703 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 January 2022, 4,033 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. As of December 31, 2022, approximately $ 43,000 of employee payroll deductions have accumulated and have been recorded in accrued expenses. In January 2023, 93,741 shares that were purchased as of December 31, 2022, under the 2022 ESPP, were issued. Accordingly, during the first quarter of 2023, approximately $ 29,000 of employee payroll deductions accumulated at December 31, 2023, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $ 14,000 was returned to the employees. NOTE 18 – 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, 2022: Exercise Number Expiration Price Outstanding Date $ 16.00 779 November 2024 $ 18.24 3,860 February 2025 $ 1,120.00 15,331 December 2023 19,970 F- 21 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS No warrants were exercised during the year ended December 31, 2022. During the year ended December 31, 2021, 107 warrants from the February 2020 Financing, with an exercise price of $ 18.24 , 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 $ 630.00 and $ 687.50 , respectively, expired. NOTE 19 – 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, 2022, the Company has right-of-use assets of $ 0.7 million and a total lease liability for operating leases of $ 0.7 million of which $ 0.3 million is included in long-term lease liabilities and $ 0.4 million is included in current lease liabilities. At December 31, 2022, 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, 2023 $ 441 2024 164 2025 159 2026 9 2027 2 775 Included interest ( 15 ) $ 760 During the year ended December 31, 2022, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing an additional operating lease liability of approximately $ 386,000 based on the present value of the minimum rental payments. The Company also recognized a corresponding increase to ROU assets of approximately $ 386,000 , which represents a non-cash investing and financing activity. 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 . Operating lease expense was $ 0.6 million for both years ended December 31, 2022 and 2021. Other information related to leases was as follows: Cash paid for amounts included in the measurement of lease liabilities: December 31, 2022 December 31, 2021 Operating cash flow from operating leases (in thousands) $ 598 $ 632 Weighted Average Remaining Lease Term Operating leases 2.20 years 2.71 years Weighted Average Discount Rate Operating leases 2.19 % 1.34 % NOTE 20 – COMMITMENTS Contractual agreements The Company has entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $ 58.6 million at December 31, 2022 for future work to be performed. The Company entered into a construction contract with outstanding commitments aggregating approximately $ 2 .0 million at December 31, 2022 for future work to be performed. 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 $ 0.9 million and $ 0.4 million for the year ended December 31, 2022, and 2021, respectively, for contributions under the 401(k) Plan. F- 22 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 – INCOME TAXES – Components of the net loss consist of the following (in thousands): Year ended December 31, 2022 2021 Foreign $ ( 88,478 ) $ ( 73,689 ) Domestic ( 21,740 ) ( 18,598 ) Total $ ( 110,218 ) $ ( 92,287 ) In 2022, the foreign losses are primarily comprised of $ 86.7 million related to the Irish operations and $ 1.5 million related to the Bermudan operations of Tonix International Holding. In 2021, the foreign losses were primarily comprised of $ 71.9 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, 2022 2021 Statutory federal income tax ( 21.0 )% ( 21.0 )% Change in valuation allowance 9.6 % 15.0 % Foreign loss not subject to income tax 7.0 % 7.0 % Attribute reduction from control change 4.0 % ( 1.2 )% Other 0.4 % 0.2 % Income Tax Provision 0.0 % 0.0 % Deferred tax assets (liabilities) and related valuation allowance as of December 31, 2022 and 2021 were as follows (in thousands): December 31, 2022 2021 Deferred tax assets/(liabilities): Net operating loss carryforward $ 21,642 $ 13,297 Stock-based compensation 7,353 5,832 Other 1,997 2,285 Total deferred assets 30,992 21,414 Valuation allowance ( 30,992 ) ( 21,414 ) 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, 2022 have been reduced to $ 0 .0 million to reflect IRC section 383 ownership changes through December 31, 2022 and the resulting inability to utilize a portion of the R&D credit prior to its expiration. At December 31, 2022, the Company has $ 165.5 million of Ireland net operating loss (“NOL”) carryforwards that do not expire. As of December 31, 2022, the Company's Federal NOL carryforwards of $ 3.6 million, which do not expire, but their utilization is limited to 80 % of taxable income. Additionally, the Company has New Jersey NOL carryforwards of $ 2.3 million and Massachusetts NOL carryforwards of $ 0.3 million, which both expire in 20 years . The NOL carryforwards at December 31, 2022 have been reduced to reflect IRC section 382 ownership changes through December 31, 2022 and the 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, 2022. 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, 2022 and 2021 were $ 9.5 million, and $ 15.3 million respectively. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. However, as of December 31, 2022 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, 2022, the Company’s tax returns remain open and subject to examination by the tax authorities for the tax years 2019 and after. F- 23 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22 – SUBSEQUENT EVENTS Since January 1, 2023, the Company has repurchased 15,700,269 of its shares of common stock outstanding under its $ 12.5 million s hare repurchase program at prices ranging from $ 0.44 to $ 1.38 per share for a gross aggregate cost of approximately $ 12.5 million. In January 2023, the Board of Directors approved a new share repurchase program pursuant to which the Company may repurchase up to $ 12.5 million in value of its outstanding common stock from time to time on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. Since January 1, 2023, the Company has repurchased 1,000,000 of its shares of common stock outstanding under the new share repurchase program at $ 1.14 per share for a gross aggregate cost of $ 1.1 million. The timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and other factors and the New Share Repurchase Program may be discontinued or suspended at any time. Repurchases will be made in accordance with the rules and regulations promulgated by the Securities and Exchange Commission and certain other legal requirements to which the Company may be subject. Repurchases may be made, in part, under a Rule 10b5-1 plan, which allows stock repurchases when the Company might otherwise be precluded from doing so. Subsequent to December 31, 2022, the Company regained compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market because the Company’s shares had a closing bid price at or above $ 1.00 per share for a minimum of 10 consecutive business days, as set forth in Nasdaq Listing Rule 5550(a)(2). On February 2, 2023, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Healion Bio Inc., pursuant to which the Company acquired all the pre-clinical infectious disease assets of Healion, including its portfolio of next-generation antiviral technology assets. Healion’s drug portfolio includes a class of broad-spectrum small molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including TNX-3900, formerly known as HB-121. As consideration for entering into the Asset Purchase Agreement, the Company paid $ 1.2 million to Healion. Because the Healion intellectual property was acquired prior to FDA approval, the cash consideration totaling $ 1.2 million, is expected to be expensed as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business. On February 13, 2023, the Company announced that it exercised an option to obtain an exclusive license from Columbia for the development of a portfolio of both fully human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including the Company’s TNX-3600 and TNX-4100 product candidates, respectively. The licensed mAbs were developed as part of a research collaboration and option agreement between the Company and Columbia. On February 23, 2023, the Company granted options to purchase an aggregate of 4,394,303 shares of the Company’s common stock to employees with an exercise price of $ 0.73 , with a term of ten years , vesting 1/3 on the first anniversary and 1/36 th each month thereafter for 24 months. Additionally, the Company granted options to purchase 1,327,500 shares of the Company’s common stock to certain employees with an exercise price of $ 0.91 , with a term of ten years , vesting 1/3 on the first anniversary and 1/36 th each month thereafter for 24 months. Subsequent to December 31, 2022, the Company sold 2.1 million shares of common stock under the Sales Agreement with AGP for net proceeds of approximately $ 1.4 million. Subsequent to December 31, 2022, the Company sold 0.6 million shares of common stock under the 2022 Purchase Agreement with Lincoln Park for net proceeds of approximately $ 0.4 million. F- 24 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.