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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-13 · 1573 added, 1191 removed, 276 unchanged (91% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND

SUPPLEMENTARY DATA

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TONIX PHARMACEUTICALS HOLDING CORP.

Report of Independent Registered Public Accounting

Report of Independent Registered Public Accounting Firm

Consolidated balance sheets as of December 31, 2023 and 2022

Consolidated statements of operations

for the years ended December 31, 2022 and 2021

Consolidated statements of comprehensive

loss for the years ended December 31, 2022 and 2021

Consolidated statements of stockholders’

equity for the years ended December 31, 2022 and 2021

Consolidated statements of cash

flows for the years ended December 31, 2022 and 2021

Consolidated statements of operations for the years ended December 31, 2023 and 2022

Consolidated statements of comprehensive loss for the years ended December 31, 2023 and 2022

Consolidated statements of stockholders’ equity for the years ended December 31, 2023 and 2022

Consolidated statements of cash flows for the years ended December 31, 2023 and 2022

Notes to consolidated financial statements

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

To the Board of Directors and Stockholders of

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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”).

sheets of Tonix Pharmaceuticals Holding Corp.

and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, 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.

present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, 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

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We believe that our audits provide a reasonable basis for our opinion.

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:

Critical Audit Matters

The critical audit matters communicated below are

matters arising from the current period audit of the financial statements that were 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 communication of the critical audit matters 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.

on the critical audit matters or on the accounts or disclosures to which they relate.

Accrual and prepaid balance for clinical trial expenses

34 unchanged sentences

to prior-period expenses to identify unusual fluctuations, if any.

Valuation of intangible assets acquired in a business combination

As described in Note 12 to the consolidated financial

statements, the Company acquired certain assets from Upsher-Smith Laboratories LLC, which was accounted for as a business combination

using the acquisition method of accounting.

The acquired intangible assets consisted of developed technology related to Zembrace and Tosymra,

including the value associated with the acquired patents, customer relationships, and trademarks and tradenames associated with the technology.

The developed technology intangible assets were valued as composite assets under the premise that each asset is reliant on one another

to generate cash flow, and is not considered separable from the technology.

The intangible assets had an estimated acquisition date fair

value of $10.1 million.

The accounting for business combinations, including valuation of intangible assets, was also identified as a critical

accounting estimate by management.

We identified valuation of intangible assets acquired

in a business combination as a critical audit matter due to the significant judgment and estimation required by management in the use

of fair valuation methodologies, including sensitive significant assumptions such as revenue growth rates and risk premium.

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 the purchase price allocation.

Our procedures also included, among others, assessing the appropriateness of the valuation methodology utilized, testing of significant

assumptions, and ensuring completeness and accuracy of the underlying data used by the Company.

We involved our valuation specialist to

assist in evaluating the valuation methodologies and risk premium used in the purchase price allocation valuation.

We have served as the Company’s auditor since

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Iselin, New Jersey

March 13, 2023

April 1, 2024

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED BALANCE

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2023 AND 2022

(In Thousands, Except Par Value and Share Amounts)

(In Thousands, Except Par Value and Share

Current assets:

Cash and cash equivalents

Prepaid expenses and other

Inventory, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Operating lease right-to-use assets

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Accrued expenses and other current liabilities

Term loan payable, short term

Lease liability, short term

Total current liabilities

Term loan payable, long term

Series C Warrant liabilities

Series D Warrant liabilities

Lease liability, long term

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Stockholders’ equity:

Preferred stock, $ 0.001

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;

Series B Convertible Preferred stock, 0 shares designated as of both December 31, 2023 and 2022;

issued and outstanding - None

Series A Convertible Preferred stock, 0

shares designated as of both December 31, 2022 and 2021;

Series A Convertible Preferred stock, 0 shares designated as of both December 31, 2023 and December 31, 2022;

issued and outstanding - none

Common stock, $ 0.001

1,000,000,000

and 25,000,000 shares

authorized as of December 31, 2022 and 2021, respectively;

and 15,638,274

shares issued and outstanding as of December 31, 2022 and 2021, respectively and 93,741

shares to be issued as of December 31, 2022 and December 31, 2021, respectively

Common stock, $ 0.001 par value;

160,000,000 shares authorized;

58,614,593 and 12,368,620 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively and 66,329 and 14,999 shares to be issued as of December 31, 2023 and December 31, 2022, respectively

Additional paid in capital

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Total stockholders’ equity

Total liabilities and stockholders’

Total liabilities and stockholders’ equity

See the accompanying notes to the consolidated

1 unchanged sentence

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS

OF OPERATIONS

(In Thousands, Except Share and Per Share Amounts)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share and Per Share

Year ended December 31,

Product revenue, net

COSTS AND EXPENSES:

Cost of sales

Research and development

General and administrative

Total Operating Expenses

Operating loss

Interest income

Preferred stock

deemed dividend

Other income, net

Preferred stock deemed dividend

Net loss available to common stockholders

Net loss per common share, basic and

Weighted average common shares outstanding,

basic and diluted

Net loss to common stockholders per common share, basic and diluted

Weighted average common shares outstanding, basic and diluted

See the accompanying notes to the consolidated

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TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(In Thousands)

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TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS

OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Amounts)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In Thousands, Except Share and Per Share

Comprehensive

Income (loss)

Balance, December 31, 2022

Issuance of common stock under At-the-market offering, net

of transactional expenses of $ 3,078

Issuance of common stock under 2022 Purchase Agreement

Repurchase of common stock under Share Repurchase Program, including transactional expenses of $ 334

Issuance of common stock under 2022 Purchase agreement

Issuance of commitment shares under 2022 Purchase agreement

Preferred stock deemed dividend

Issuance of common stock under At-the-market offering, net of transactional expenses of $ 137

Issuance of common stock and warrants under AGP Financing, net of transactional expenses of $ 2,663

Issuance of common stock upon exercise of prefunded common warrants

Employee stock purchase plan

Stock-based compensation

Foreign currency transaction loss

Foreign currency transaction gain

Balance, December 31, 2023

3 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In Thousands, Except Share and Per Share Amounts)

(In Thousands, Except Share and Per Share

Comprehensive

Income (loss)

Balance, December 31, 2021

Issuance of common stock in January 2021 ($ 25.60

per share), net of transactional expenses of $ 3,096

Issuance of common stock in exchange for exercise of warrants

in March 2021 ($ 18.24

Issuance of common stock in February 2021 ($ 38.40

per share), net of transactional expenses of $ 5,002

Issuance of common stock under At-the-market offering, net

of transactional expenses of $ 2,332

Issuance of common stock under 2021 Purchase Agreement, net

of transactional expenses of $ 75

Issuance of common stock under At-the-market offering, net of transactional expenses of $ 3,078

Issuance of commitment shares under 2022 Purchase agreement

Issuance of common stock in the acquisition of the OyaGen license

Issuance of commitment shares under Lincoln park Purchase agreement

Issuance of common stock under 2022 Purchase agreement

Issuance of common stock under 2021 Purchase agreement

Preferred stock deemed dividend

Employee stock purchase plan

Stock-based compensation

Foreign currency transaction loss

Foreign currency transaction gain

Balance, December 31, 2022

See the accompanying notes to the consolidated

financial statements

See the accompanying notes to the

consolidated financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS

OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

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CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating

$ ( 116,658 )

$ ( 110,218 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Common stock issued to acquire in-process research and development

Stock-based compensation

Change in fair value of warrant liabilities

Offering costs allocated to warrant liabilities

Gain on sale of property and equipment

Changes in operating assets and liabilities:

Prepaid expenses

Prepaid expenses and other

Accounts payable

Lease liabilities and ROU asset, net

Operating lease liabilities and ROU asset, net

Accrued expenses and other current liabilities

2 unchanged sentences

Purchase of property and equipment

Disposal of property and equipment

Purchase of a business

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of warrants

Proceeds from ESPP

Proceeds, net of $ 6,659

expenses, from sale of convertible redeemable preferred stock

Redemption of convertible redeemable preferred stock

Proceeds, net of $ 3,078

expenses, from sale of common stock and warrants

Proceeds, net of $ 6,659 expenses, from sale of convertible redeemable preferred stock

Redemption of convertible preferred stock

Proceeds from debt financing

Proceeds, net of $ 2,800 and $ 3,078 expenses, from sale of common stock and warrants

Proceeds from allocated warrant liabilities

Repurchase of common stock

Net cash provided by financing activities

Effect of currency rate change on cash

Net (decrease) increase in cash, cash equivalents and restricted

Cash, cash equivalents and restricted

cash beginning of the period

Cash, cash equivalents and restricted

cash end of period

Net decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash beginning of the period

Cash, cash equivalents and restricted cash end of period

Supplemental disclosures of cash flow information:

Purchases of property and equipment

included in accounts payable and accrued liabilities

Purchases of property and equipment included in accounts payable and accrued liabilities

Debt financing costs included in accrued liabilities and other current liabilities

Issuance costs included in accrued liabilities and other current liabilities

Preferred stock deemed dividend

See the accompanying notes to consolidated financial

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED

New operating leases and lease amendments

See the accompanying notes to consolidated

financial statements

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

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

(“Tonix Sub”), is a fully-integrated biopharmaceutical

company focused on developing and commercializing therapeutics to treat and prevent human disease and alleviate suffering.

The therapeutics

under development include both small molecules and biologics.

Tonix, through its recent acquisition, markets Zembrace® SymTouch®

(sumatriptan injection) 3 mg (“Zembrace”) and Tosymra® (sumatriptan nasal spray) 10 mg (“Tosymra”).

and Tosymra, which were acquired as of June 30, 2023 (See Note 12), are each indicated for the treatment of acute migraine with or without

aura in adults.

All other drug product and vaccine candidates are still in development and are not 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 Institute LLC, Tonix R&D Center LLC, Tonix Pharma Holdings Limited and Tonix Pharma

Limited (collectively hereafter referred to as the “Company” or “Tonix”).

1 unchanged sentence

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.

31, 2022, the Company had an accumulated deficit of approximately $ 470.0

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.

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, 2023, the Company had working

capital of approximately $ 28.9 million.

At December 31, 2023, the Company had an accumulated deficit of approximately $600.7 million.

The Company held cash and cash equivalents of approximately $24.9 million as of December 31, 2023.

The Company believes

that its cash resources at December 31, 2023 and the proceeds that it raised from equity offerings in the first quarter of 2024

(See Note 23), will not meet its operating and capital expenditure requirements through the second quarter of 2024.

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.

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.

2 – SIGNIFICANT ACCOUNTING POLICIES

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.

The Company continues to face significant challenges

and uncertainties and must 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, or at all.

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, its ability to achieve our development and commercialization goals would

be adversely affected and the Company may be forced to cease operations.

The financial statements do not include any adjustments

that might result from the outcome of this uncertainty.

NOTE 2 – SIGNIFICANT ACCOUNTING

Reverse Stock Split

On May 9, 2023, the

Company filed a Certificate of Change with the Nevada Secretary of State, effective May 10, 2023.

Pursuant to the Certificate of

Change, the Company effected a 1-for-6.25 reverse stock split of its issued and outstanding shares of common stock.

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 retrospective basis, to reflect the reverse stock split for all periods presented.

Authorized preferred stock was not adjusted because of the reverse stock split.

and uncertainties

The Company’s primary

efforts are devoted to conducting research and development of innovative pharmaceutical and biological products to address public health

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.

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 now has commercial products available for sale, and

generates revenue from the sale of its Zembrace® SymTouch® and Tosymra® products, with no assurance that the Company

will be able to generate sufficient cash flow to fund operations from its commercial products or products in development if and

when approved.

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.

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

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.

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.

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).

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:

TONIX PHARMACEUTICALS

HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, but are not limited to, provisions for product returns, coupons, rebates,

chargebacks, discounts, allowances, inventory realization, the assumptions used in the fair value of stock-based compensation and

other equity instruments, the percent of completion of research and development contracts, fair value estimates for assets acquired

in business combinations, and assessment of useful lives of acquired intangible assets.

Business Combinations

The Company accounts

for business combinations in accordance with the provisions of ASC 805, Business Combinations and ASU No.

2017-01, Business Combinations

Clarifying the Definition of a Business.

Business combinations are accounted for using the acquisition method, whereby

the consideration transferred is allocated to the net assets acquired based on their respective fair values measured on the acquisition

The difference between the fair value of these assets and the purchase price is recorded as goodwill.

Transaction costs other

than those associated with the issue of debt or equity securities, and other direct costs of a business combination are not considered

part of the business acquisition transaction and are expensed as incurred.

Segment Information and Concentrations

segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the

chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business in one segment.

Company has two products that each accounted for more than 10 % of total revenues during the year ended December 31, 2023.

products collectively accounted for 100 % of revenues during the year ended December 31, 2023.

of December 31, 2023, accounts receivable from five customers accounted for 26 % , 21 % , 16 % , 14 % and 13 % of total accounts receivable.

For the year ended December 31, 2023, revenues from five customers accounted for 23 % , 21 % , 19 % , 17 % and 10 % of net product revenues,

respectively.

As of December 31, 2022, and for the year ended December 31, 2022, the Company had no commercialized products and

therefore had no accounts receivable or revenues.

Cash, Cash Equivalents and Restricted Cash

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, 2023, and December 31, 2022, cash equivalents, which consisted

of money market funds, amounted to approximately $ 23,000 and $ 116.3 million, respectively.

Restricted cash, which is included

in Other non-current assets on the consolidated balance sheet, at December 31, 2023, of approximately $ 0.9 million, collateralizes

a letter of credit issued in connection with the lease of office space in Chatham, New Jersey (see Note 20) and restricted cash

held by vendors in escrow accounts for patient support services.

Restricted cash at December 31, 2022, of approximately $ 241,000 ,

collateralizes a letter of credit issued in connection with the lease of office space in Chatham, New Jersey and New York, New

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:

(in thousands)

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Restricted cash

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

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

respectively.

The Company’s property and equipment is located in the United States.

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.

The Company determines if

an arrangement is, or contains, a lease at inception.

Accounts Receivable, net

Accounts receivable

consists of amounts due from our wholesale and other third-party distributors and pharmacies and have standard payment terms that

generally require payment within 30 to 90 days.

For certain customers, the accounts receivable for the customer is net of prompt

payment or specialty pharmacy discounts.

We do not adjust our receivables for the effects of a significant financing component

at contract inception if we expect to collect the receivables in one year or less from the time of sale.

We provide reserves against

accounts receivable for estimated losses that may result from a customer’s inability to pay.

Amounts determined to be uncollectible

are charged or written-off against the reserve.

However, during the period covered by the Transition Services Agreement, the Seller

has agreed to collect the accounts receivable on behalf of the Company and net settle within 45 days from each month-end.

12 for further details.

The Company had no accounts receivable as of December 31, 2022.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December

31, 2023 , the Company did not have an allowance for doubtful accounts.

An allowance for doubtful accounts is determined

based on the financial condition and creditworthiness of customers and the Company considers economic factors and events or trends

expected to affect future collections experience.

Any allowance would reduce the net receivables to the amount that is expected

to be collected.

The payment history of the Company’s customers will be considered in future assessments of collectability

as these patterns are established over a longer period .

Concentration of Credit Risk

Financial instruments

that potentially subject us to concentrations of credit risk include cash and cash equivalents, and accounts receivable.

to minimize the risks related to cash and cash equivalents by investing in a broad and diverse range of financial instruments,

and we have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain

Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due

to the wide variety of customers using our products, as well as their dispersion across different geographic areas.

We monitor the financial

performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile.

We continue to monitor these conditions and assess their possible impact on our business.

Inventories are recorded

at the lower of cost or net realizable value, with cost determined by the weighted average cost method.

The Company periodically

reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking

into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand.

If non-saleable

items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value

in the period that the decline in value is first recognized.

Although the Company makes every effort to ensure the accuracy of

forecasts of future product demand, any significant unanticipated decreases in demand could have a material impact on the carrying

value of inventories and reported operating results.

The Company’s reserves were approximately $ 21,000 as of December 31,

The Company did not have inventory on hand prior to the acquisition of Zembrace and Tosymra on June 30, 2023.

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 the shorter of the useful life or term of

lease for leasehold improvements.

Depreciation on assets begins when the asset is placed in service.

Depreciation and amortization

expense for the years ended December 31, 2023, and 2022, were $ 3.8 million and $ 1.3 million, respectively.

All property and equipment

are located in the United States.

Intangible assets, net

Intangible assets deemed

to have finite lives are carried at acquisition-date fair value less accumulated amortization and impairment, if any.

intangible assets consist of developed technology intangible assets acquired in connection with the acquisition of certain products

from Upsher Smith Laboratories, LLS (“Upsher Smith”) consummated on June 30, 2023 (See Note 5).

The acquired intangible

assets are amortized using the straight-line method over the estimated useful lives of the respective assets.

Amortization expense

for the year ended December 31, 2023, was $ 477,000 .

The annual impairment assessment date will be June 30.

No triggering events

were identified during the period of July 1, 2023 through December 31, 2023.

During the year ended

December 31, 2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life.

intangibles with indefinite lives, which are included in Intangible assets, net 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, 2023, the Company believed that no impairment existed.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill represents

the excess of the aggregate purchase price over the fair value of the net tangible and intangible assets acquired in a business

Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate

that the carrying amount of goodwill may be impaired.

As of December 31, 2023, the Company has recognized goodwill in connection

with the USL Acquisition consummated on June 30, 2023 (See Note 5).

The annual impairment assessment date will be June 30.

No triggering

events were identified during the period of July 1, 2023 through December 31, 2023.

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

assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s consolidated balance

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.

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.

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

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

Lease expense for lease payments made under operating leases is recognized on a straight-line basis over the lease term.

Deferred financing costs

Deferred financing

costs represent the cost of obtaining financing arrangements and are amortized over the term of the related debt agreement using

the effective interest method.

Deferred financing costs related to term debt arrangements are reflected as a direct reduction of

the related debt liability on the consolidated balance sheet.

Amortization of deferred financing costs are included in interest

expense on the consolidated statements of operations.

Original issue discount

Certain term debt issued

by the Company provides the debt holder with an original issue discount.

Original issue discounts are reflected as a direct reduction

of the related debt liability on the consolidated balance sheets and are amortized over the term of the related debt agreement

using the effective interest method.

Amortization of original issue discounts are included in interest expense on the consolidated

statements of operations.

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.

Revenue Recognition

The Company records

and recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects

the consideration to which the Company expects to be entitled in exchange for those goods or services.

The Company’s revenues

primarily result from contracts with customers, which are generally short-term and have a single performance obligation - the delivery

The Company’s performance obligation to deliver products is satisfied at the point in time that the goods are

received by the customer, which is when the customer obtains title to and has the risks and rewards of ownership of the products,

which is generally upon shipment or delivery to the customer as stipulated by the terms of the sale agreements.

The transaction

price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

contractual payment terms are typically 30 to 90 days .

Revenues from product sales, net of gross-to-net

deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable

of occurring and when the uncertainty associated with gross-to-net deductions is subsequently resolved.

Taxes assessed by governmental

authorities and collected from customers are excluded from product sales.

Shipping and handling activities are considered to be

fulfillment activities and not a separate performance obligation.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Many of the Company’s

products sold are subject to a variety of deductions.

Revenues are recognized net of estimated rebates and chargebacks, cash discounts,

distributor fees, sales return provisions and other related deductions.

Deductions to product sales are referred to as gross-to-net

deductions and are estimated and recorded in the period in which the related product sales occur.

Accruals for these provisions

are presented in the consolidated financial statements as reductions to gross sales in determining net sales, and as a contra asset

within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash).

Amounts recorded for revenue

deductions can result from a complex series of judgements about future events and uncertainties and can rely heavily on estimates

and assumptions.

The following section briefly describes the nature of the Company’s provisions for variable consideration

and how such provisions are estimated:

Chargebacks -

The Company sells a portion of its products indirectly through wholesaler distributors, and enters into specific agreements with

these indirect customers to establish pricing for the Company’s products, and in-turn, the indirect customers and entities

independently purchase these products.

Because the price paid by the indirect customers and/or entities is lower than the price

paid by the wholesaler, the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual

price with the indirect customers and the wholesale customer’s purchase price.

The Company’s provision for chargebacks

is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler

inventory levels as well as historical chargeback rates.

The Company continually monitors its reserve for chargebacks and adjusts

the reserve accordingly when expected chargebacks differ from actual experience.

Rebates - The

Company participates in certain government and specific sales rebate programs which provides discounted prescription drugs to qualified

recipients, and primarily relate to Medicaid and managed care rebates in the U.S., pharmacy rebates, Tri-Care rebates and discounts,

specialty pharmacy program fees and other governmental rebates or applicable allowances.

Managed Care Rebates are processed in the quarter following the quarter in which they are earned.

The managed care reporting entity submits utilization data after the end of the quarter and the Company processes the payment in accordance with contract terms.

All rebates earned but not paid are estimated by the Company according to historical payments trended for market growth assumptions.

Medicaid and State Agency rebates are based upon historical experience of claims submitted by various states.

The Company monitors Medicaid legislative changes to determine what impact such legislation may have on the provision for Medicaid rebates.

The accrual of State Agency reserves is based on historical payment rates.

There is an approximate three-month lag from the time of product sale until the rebate is paid.

Tri-Care represents a regionally managed health care program for active duty and retired members, dependents and survivors of the US military.

The Tri-Care program supplements health care resources of the US military with civilian health care professionals for greater access and quality healthcare coverage.

Through the Tri-Care program, the Company provides pharmaceuticals on a direct customer basis.

Prices of pharmaceuticals sold under the Tri-Care program are pre-negotiated and a reserve amount is established to represent the proportionate rebate amount associated with product sales.

Coverage Gap refers to the Medicare prescription drug program and represents specifically the period between the initial Medicare Part D prescription drug program coverage limit and the catastrophic coverage threshold.

Applicable pharmaceutical products sold during this coverage gap timeframe are discounted by the Company.

Since the nature of the program is that coverage limits are reset at the beginning of the calendar year;

the payments escalate each quarter as the participants reach the coverage limit before reaching the catastrophic coverage threshold.

The Company has determined that the cost of this reserve will be viewed as an annual cost.

Therefore, the accrual will be incurred evenly during the year with quarterly review of the liability based on payment trends and any revision to the projected annual cost.

Prompt-Pay and other

Sales Discounts - The Company provides for prompt pay discounts, which early payments are recorded as a reduction of revenue

and as a reduction in the accounts receivable at the time of sale based on the customer’s contracted discount rate.

sales discounts represent programs the Company has in place to reduce costs to the patient.

This includes copay buy down and eVoucher

Product Returns

- Consistent with industry practice, the Company offers customers a right to return any unused product.

The customer’s right

of return commences typically six months prior to product expiration date and ends one year after product expiration date.

returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price.

The Company estimates

the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction

of revenue in the period the related product revenue is recognized.

The Company estimates products returns as a percentage of sales

to its customers.

The rate is estimated by using historical sales information, including its visibility and estimates into the

inventory remaining in the distribution channel.

Adjustments are made to the current provision for returns when data suggests product

returns may differ from original estimates.

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.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

TONIX PHARMACEUTICALS

HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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.

Currency Translation

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.

makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that

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

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

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.

During the year ended December 31, 2023, we received $ 2.7 million in funding as a reduction

of related research and development expense .

Included in Prepaid expenses and other is an additional $ 0.2 million which was not received until January 2024.

No funding was received during 2022.

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

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

1 unchanged sentence

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)

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)

is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners

It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

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

Other comprehensive income (loss) represents foreign currency translation adjustments.

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

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

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

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, 2023, 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.

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

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.

dilutive securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2022 and 2021, are as follows:

The Company’s

policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments and Warrant Liabilities

The Company evaluates

all of its financial instruments, including issued warrants to purchase common stock under ASC 815 – Derivatives and Hedging,

to determine if such instruments are derivatives or contain features that qualify as embedded derivatives (See Note 17).

For derivative

financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value

and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations.

The Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation

dates, which is adjusted for instrument-specific terms as applicable.

From time to time,

certain equity-linked instruments may be classified as derivative liabilities due to the Company having insufficient authorized

shares to fully settle the equity-linked financial instruments in shares.

In such case, the Company has adopted a sequencing approach

under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the classification of its contracts

at issuance and at each subsequent reporting date.

In the event that reclassification of contracts between equity and assets or

liabilities is necessary, the Company first allocates remaining authorized shares to equity on the basis of the earliest issuance

date of potentially dilutive instruments, with the earliest issuance date receiving the first allocation of shares.

of identical issuance dates, shares are then allocated to equity beginning with instruments with the latest maturity date first.

Per Share Data

The computation of

basic and diluted loss per share for the year ended December 31, 2023, and 2022 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

All warrants and preferred

stock 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 the purposes of computing EPS, these warrants and preferred stock

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.

The weighted average

number of outstanding shares of common stock used in the denominator for the calculation of basic loss per share for the year ended

December 31, 2023, include pre-funded warrants that are accounted for as equity instruments, beginning with their respective issuance

dates, as their stated exercise price of $ 0.0001 is non-substantive and there are no further vesting conditions or limitations

No income was allocated to the warrants and preferred stock for the year ended December 31, 2023, and 2022, as results

of operations were a loss for the periods.

Potentially dilutive

securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2023, and 2022, are as follows:

Warrants to purchase common stock

Options to purchase common stock

Issued Accounting Pronouncements

In August 2020, the FASB issued

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.

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.

Recently Adopted Accounting Pronouncements

In August 2020, the

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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

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 adopted ASU 2020-06 on January 1, 2023, under the modified

retrospective method of transition.

The adoption of ASU 2020-06 did not impact the Company’s financial position, results

of operations or cash flows.

In June 2016, the FASB

issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments .

The main objective of ASU 2016-13 is to provide

financial statement users with more decision-useful information about an entity’s expected credit losses on financial instruments

and other commitments to extend credit at each reporting date.

To achieve this objective, the amendments in this update replace

the incurred loss impairment methodology currently used today with a methodology that reflects expected credit losses and requires

consideration of a broader range of reasonable and supportable information to develop credit loss estimates.

ASU 2016-13 will be

effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years,

using a modified retrospective approach.

Early adoption is permitted.

The Company adopted ASU 2016-13 and related updates as of

January 1, 2023.

The adoption of ASU 2016-13 did not impact the Company’s financial position, results of operations or cash

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3 – PROPERTY AND EQUIPMENT, NET

and equipment, net consisted of the following (in thousands):

Recent Accounting Pronouncements Not

In November 2023, the

Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment

Reporting--Improvements to Reportable Segment Disclosures , which requires incremental disclosures about a public entity’s

reportable segments but does not change the definition of a segment or the guidance for determining reportable segments.

guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information

regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss.

new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess

performance and allocate resources.

The guidance will first be effective in our annual disclosures for the year ending December

31, 2024, and will be adopted retrospectively unless impracticable.

Early adoption is permitted.

The Company is in the process

of assessing the impact of ASU 2023-07 on our disclosures.

In December 2023, the

FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective

tax rate reconciliation as well as information on income taxes paid.

The guidance will first be effective in our annual disclosures

for the year ending December 31, 2025, and should be applied on a prospective basis with the option to apply retrospectively.

adoption is permitted.

The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures.

In March 2024, the

SEC adopted new rules relating to the disclosure of a range of climate-change-related physical and transition risks, data, and

opportunities.

The adopted rule contains several new disclosure obligations, including, (i) disclosure on how the board of directors

and management oversee climate-related risks and certain climate-related governance items, (ii) disclosure of information related

to a registrant’s climate-related targets, goals, and/or transition plans, and (iii) disclosure on whether and how climate-related

events and transition activities impact line items above a threshold amount on a registrant’s consolidate financial statements,

including the impact of the financial estimates and the assumptions used.

This new rule will first be effective in the Company’s

disclosures for the year ending December 31, 2027.

The Company is in the process of assessing the impact on our consolidated financial

statements and disclosures.

NOTE 3 – INVENTORY

The components of inventory

consisted of the following as of December 31, 2023:

(in thousands)

Raw Materials

Work-in-process

Finished Goods

Inventory gross

Inventory reserves

Total Inventory

NOTE 4 – PROPERTY AND EQUIPMENT,

Property and equipment,

net consisted of the following (in thousands):

(in thousands)

Property and equipment, net:

4 unchanged sentences

Construction in progress

Accumulated depreciation and

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,

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.

4 – OTHER BALANCE SHEET INFORMATION

of selected captions in the consolidated balance sheets consist of:

Property and equipment gross

Accumulated depreciation and amortization

Property and equipment, net

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

As of August 1, 2022, the assets became ready for the intended use

and were placed in service.

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.

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 related to the build-out of the facility.

As of October 1, 2022, the assets became ready

for the intended use and were placed in service.

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, 2023, the asset

was not ready for its intended use.

the year ended December 31, 2023, property and equipment with a net book value of approximately $ 0.9 million were sold for net

proceeds of approximately $ 1 .0 million.

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

The following table

provides the gross carrying value of goodwill as follows:

(in thousands)

Balance at December 31, 2022

Acquired during the period (see Note 12)

Balance at December 31, 2023

The following table

provides the gross carrying amount and accumulated amortization for each major class of intangible asset:

(in thousands)

Intangible assets subject to amortization

Developed technology

Accumulated amortization

Intangible assets not subject to amortization

Internet domain rights

Total intangible assets, net

During the year ended December 31, 2023,

the Company recorded amortization of $ 477,000 .

At December 31, 2023,

the related amortization for each of the next five years ended December 31 is as follows (in thousands):

Year Ending December 31,

2028 and beyond

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – 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:

Observable inputs, such as quoted prices in active markets.

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.

Unobservable inputs in which there is little or no market data.

As of December 31,

2023, and December 31, 2022, the Company used Level 1 quoted prices in active markets to value cash equivalents of $ 0.1 million

and $ 116.3 million, respectively.

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2022.

As of December 31, 2023, Level 3 liabilities include a portion of the Series D Warrants and all Series C Warrants issued on December

22, 2023, which did not meet the criteria for equity classification due to insufficient authorized shares to settle the instruments

and are therefore accounted for as liabilities at fair value.

The Company estimates

the fair value of the Series D Warrants and the Series C Warrants using significant unobservable inputs, which represent Level

3 measurements within the fair value hierarchy.

The Company estimated the fair value of these instruments using the Black-Scholes

option pricing model, which was then adjusted by applying a discount for lack of marketability (“DLOM”) based on the

expected timing of receipt of stockholder approval to increase the number of authorized shares and to allow the Warrants to become

exercisable in accordance with Nasdaq Listing Rule 5635.

The significant unobservable

inputs used in the valuation models at issuance and as of December 31, 2023, to measure the fair value of the Series D Warrants

and the Series C Warrants are as follows:

Series C Warrants

Series D Warrants

Valuation Date:

December 22, 2023

December 31, 2023

December 22, 2023

December 31, 2023

Common stock price

Risk-free rate

Expected term (in years)

Expected volatility

Dividend yield

Discount for lack of marketability

The liability-classified

Series D Warrants and the Series C Warrants were recognized at their aggregate issuance date fair values totaling $ 22.5 million.

From the date of issuance to December 31, 2023, the Company recognized a change in fair value resulting in a loss of $0.3 million

related to the liability-classified warrants.

Changes in the fair value of the liability-classified warrants are recognized as

a component of other income, net in the consolidated statement of operations.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – OTHER BALANCE SHEET INFORMATION

Components of selected

captions in the consolidated balance sheets consist of:

(in thousands)

Prepaid expenses and other:

Contract-related

Debt interest and fees

Accrued expenses and other current liabilities:

Contract-related

Upsher Smith obligation

Compensation and compensation-related

Product returns

Construction in progress

Professional fees and other

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:

Observable inputs, such as quoted prices in active markets.

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.

Unobservable inputs in which there is little or no market data.

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.

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.

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 .

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

The holders of the Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash

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.

TONIX PHARMACEUTICALS

HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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

the Preferred Stock had a redemption feature at the option of the holder, it was classified as temporary equity.

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):

A Preferred Stock

B Preferred Stock

NOTE 8 – DEBT FINANCING

Long-term debt consists of the following:

(in thousands)

current portion

Total long-term debt

unamortized debt discount and deferred financing costs

Total long-term debt, net

December 8, 2023, the Company entered into a Loan and Guaranty Agreement (the “Loan Agreement”) by and among the Company,

Krele LLC, Tonix Pharmaceuticals, Inc., Jenner and Tonix R&D Center (“Loan Parties”), with JGB Capital, LP, JGB

Partners, LP, JGB (Cayman) Port Ellen Ltd., and any other lender from time to time party hereto (collectively, the “Lenders”),

and JGB Collateral LLC, as administrative agent and collateral agent for the Lenders (in such capacity, “JGB Agent”)

for a 36 -month term loan (the “Term Loan”) in the aggregate principal amount of $ 11 .0 million, with a maturity date

of December 8, 2026 (the “Maturity Date”).

The Term Loan was funded with an original issue discount of 9 % of the principal

amount of the Term Loan, or $ 1 .0 million, which is being amortized over the term of the debt as an adjustment to the effective

interest rate on the outstanding borrowings.

Borrowings under the

Term Loan bear interest at a fluctuating rate equal to the greater of (i) the prime rate as defined in the Loan Agreement plus

3.5 % and (ii) 12 % .

Interest is payable monthly in arrears commencing in December 2023.

In connection with the Term Loan, the Company

deposited into a reserve account $ 1.8 million to be used exclusively to fund interest payments related to the Term Loan.

is reflected in Prepaid expenses and other current assets on the consolidated balance sheet.

Commencing on March

8, 2024 and continuing monthly through the Maturity Date, the outstanding principal will be due and payable in monthly installments

of $ 0.2 million, with the final remaining balance of unpaid principal and interest due and payable on the Maturity Date.

the Company must pay a monthly collateral monitoring charge equal to 0.23 % of the outstanding principal amount of the term loan

as of the date of payment.

The Company incurred $ 1.1 million in issuance costs, which is being amortized over the term of

the debt as an adjustment to the effective interest rate on the outstanding borrowings.

The Loan Agreement

provides for voluntary prepayments of the Term Loan, in whole or in part, subject to a prepayment premium.

The Loan Agreement contains

customary affirmative and negative covenants by the Company, which among other things, will require the Borrowers to provide certain

financial reports to the lenders, to maintain a deposit account to fund interest payments, and limit the ability of the Company

to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, sell assets, engage in certain

transactions, and effect a consolidation or merger.

The obligations of the Company under the Loan Agreement may be accelerated

upon customary events of default, including non-payment of principal, interest, fees and other amounts, covenant default, insolvency,

material judgements, inaccuracy of representations and warranties, invalidity of guarantees.

The Term Loan is secured by first

priority security interests in the Company’s R&D Center in Frederick, Maryland, the Advanced Development Center in North

Dartmouth, Massachusetts, and substantially all of the relevant deposit accounts.

As of December 31,

2023, the carrying amount of the Term Loan approximated its fair value as the contractual interest rate for the Term Loan was representative

of the then market interest rate.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Annual future principal

payments due on the Term Loan as of December 31, 2023 are as follows (in thousands):

Fiscal years ending

NOTE 9 – STOCKHOLDERS’ EQUITY

May 9, 2023, the Company filed a Certificate of Change with the Nevada Secretary of State, effective May 10, 2023.

the Certificate of Change, the Company effected a 1-for-6.25 reverse stock split of its issued and outstanding shares of common

stock, whereby 64,627,246 outstanding shares of the Company’s common stock were exchanged for 10,340,506 shares of the Company’s

common stock.

In connection with the reverse stock split, the Company issued an additional 131,902 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 1,000,000,000 to 160,000,000 .

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.

October 17, 2023, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”)

indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days,

the Company no longer meets the requirement to maintain a minimum bid price of $ 1 per share, as set forth in Nasdaq Listing Rule

55450(a)(1) (the “Minimum Bid Price Requirement”).

Company was initially provided with a 180 calendar day period, or until April 15, 2024, in which to regain compliance.

event that the Company does not regain compliance within this 180 -day period, the Company may be eligible to seek an additional

180 day compliance period if it meets the continued listing requirement for market value of publicly held shares and all other

initial listing standards for the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and provides

written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock

split, if necessary.

On January 25, 2024,

the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State

of Nevada to increase the number of authorized shares of the Company’s common stock from 160,000,000 to 1,000,000,000 shares

(the “Charter Amendment”).

The Charter Amendment was approved by the Company’s shareholders at a special meeting

of shareholders held on January 25, 2024.

NOTE 10 – 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 $ 6.25 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.

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 24,000,000 to 160,000,000 , as adjusted for the reverse

split, 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.

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 .

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 $ 6.25 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.

$ 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

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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):

Gross Proceeds

2 unchanged sentences

Preferred stock subject to possible redemption

During December 2022, the

Company received redemption notices for all outstanding shares of Preferred Stock.

The Preferred Stock was redeemed during December 2022

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

The holders of the Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash

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.

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

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):

A Preferred Stock

B Preferred Stock

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 % 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 $ 25.00 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.

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 8,000,000 to 24,000,000 , as adjusted for the reverse split, 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.

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 $ 25.00 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.

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.

$ 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

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):

Gross Proceeds

2 unchanged sentences

Preferred stock subject to possible redemption

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.

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.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

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.

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

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.

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.

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

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

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.

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

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

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

As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

11 – LICENSE AGREEMENT WITH CURIA

NOTE 11 – REVENUES

Disaggregation of Net Revenues

The Company’s net product revenues

are summarized below:

Zembrace Symtouch

Total product revenues

All sales are generated

in the United States.

Gross-to-Net Sales Accruals

We record gross-to-net

sales accruals for chargebacks, rebates, sales and other discounts, and product returns, which are all customary to the pharmaceutical

Our provision for gross-to-net allowances

was $ 2.9 million at December 31, 2023, $ 0.6 million of which was recorded as a reduction to accounts receivable and $ 2.3 million

recorded as a component of accrued expenses.

NOTE 12 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH

On June 30, 2023, the Company completed

the acquisition of certain assets from Upsher Smith related to Zembrace SymTouch (sumatriptan injection) 3 mg (“Zembrace”)

and Tosymra (sumatriptan nasal spray) 10 mg (“Tosymra”) products (such businesses collectively, the “Business”)

and certain inventory related to the Business for an aggregate purchase price of approximately $ 26.5 million, including certain deferred

payments and subject to customary adjustments (such transaction, the “USL Acquisition”).

On June 30, 2023, in connection with the USL Acquisition, the Company and

Upsher Smith entered into a Transition Services Agreement (the “Transition Services Agreement”), pursuant to which Upsher Smith will provide

certain transition services to the Company for base fees equal to $ 100,000 per month for the first six months, and $ 150,000 per months

for the seventh through ninth months, plus additional monthly fees for each service category totaling up to $ 150,000 per month.

has amended the transitional services agreement with Upsher Smith so that Upsher Smith can continue to provide administrative services.

Company has assumed certain obligations of Seller, including the payment of quarterly earn-out payments on annual net sales from

the Business in the U.S.

for Tosymra, 4 % for net sales of $ 0 to $ 30 million, 7 % of net sales of $ 30 to $ 75 million;

9 % for net sales of $ 75 to $ 100 million;

12 % for net sales of $ 100 to $ 150 million;

and 15 % for net sales greater than $ 150 million.

Earn-out payments with respect to Tosymra are payable until the expiration or termination of the product’s Orange Book listed

patent(s) with respect to the United States or, outside the United States, the expiration of the last valid claim covering the

product in the relevant country of the territory.

For Zembrace, earn-out payments on annual net sales in the U.S.

are 3 % for net

sales of $ 0 to $ 30 million, 6 % of net sales of $ 30 to $ 75 million;

12 % for net sales of $ 75 to $ 100 million;

16 % for net sales

of greater than $ 100 million.

Such earn-out payments are payable until July 19, 2025.

Upon the entry of a generic version of the

relevant product, the applicable earn-out rates shall be reduced by 90 % percent with respect to Zembrace, and by 66.7 % percent

Prior to Purchaser or a licensee filing an application for marketing authorization for either of the products in

a permitted country outside the U.S., the parties will negotiate in good faith the earn-out payment rates annual net sales tiers

that will apply for such country, based on the market opportunity for the product in such country.

If the parties fail to agree,

then the earn-out payment rates and annual net sales tiers described above will apply.

addition, the Company has assumed the obligation to pay an additional 3 % royalty on net sales of Tosymra, plus an additional 3 %

if a patent containing certain claims related to Tosymra issues in the U.S., for 15 years from the first commercial sale of Tosymra

in the applicable country or for as long as the manufacture, use or sale of Tosymra in such country is covered by a valid claim

of a licensed patent, and up to $ 15 million per Tosymra product on the achievement of sales milestones.

As consideration for

acquisition of the Business and certain product-related inventories, the Company paid approximately $ 23.5 million in cash upfront.

On the earlier of March 2024 and the completion of the transition services to be provided by Upsher Smith, as described above, the Company

agreed to pay an additional deferred payment of $ 3 .0 million in cash, which is included in Accrued expenses and other current liabilities

on the accompanying balance sheet.

The following table summarizes the components of the purchase consideration (in thousands):

Purchase consideration

Closing cash consideration

Inventory adjustment payment liability

Deferred payment liability

Purchase price to be allocated

The USL Acquisition

was accounted for as a business combination using the acquisition method, in accordance with the provisions of ASC 805, Business

Combinations and ASU No.

2017-01, Business Combinations (Topic 805):

Clarifying the Definition of a Business.

and intangible assets acquired were recorded at their estimated fair values on the acquisition date, and the difference between

the fair value of these assets and the purchase price has been recorded as goodwill.

The purchase price allocation is based upon

preliminary valuations and estimates and assumptions which are subject to change.

As the Company receives additional information

about facts and circumstances that existed at the acquisition date, the fair values of the acquired inventory and intangible assets

may be adjusted, with the offset recorded to goodwill.

The following table

represents the allocation of the purchase price to the assets acquired by the Company in the USL Acquisition recognized in the

Company’s consolidated balance sheets (in thousands):

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preliminary purchase price allocation

Prepaid expenses and other

Intangible assets, net

Fair value of assets acquired

The acquired inventory

consists of Upsher Smith’s raw materials, semi-finished goods, and finished goods inventory as of the Closing date.

The fair value

was determined based on the estimated selling price of the inventory, less the estimated total costs to complete, disposal effort

and holding costs.

$ 1.0 million of goodwill arising from the USL Acquisition represents expected synergies from combining operations, intangible

assets that do not qualify for separate recognition, and other factors, of which all is expected to be deductible for tax purposes,

subject to any limitations.

Intangible assets eligible

for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability

criterion in the accounting guidance.

The identifiable intangible assets acquired and their estimated useful lives for amortization

are as follows (in thousands):

Developed technology - Tosymra

Developed technology - Zembrace

The developed technology

intangible assets related to Zembrace and Tosymra includes the value associated with the acquired patents, customer relationships,

and trademarks and trade names associated with the technology.

The developed technology intangible assets were valued as composite

assets under the premise that each asset is reliant on one another to generate cash flow, is not considered separable from the

technology, and are assumed to have similar useful lives.

The composite intangible assets were valued using a multi-period excess

earnings method and are being amortized over their estimated useful lives using the straight-line method of amortization.

assumptions used in estimating the fair values of intangible assets include forecasted financial information, the weighted average

cost of capital, customer retention rates, and certain other assumptions.

The fair values assigned

to the assets acquired are based on reasonable assumptions and estimates that market participants would use.

Actual results may

differ from these estimates and assumptions.

Supplemental Pro Forma Information

following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the year

ended December 31, 2023 and 2022 as if the USL Acquisition had occurred as of January 1, 2022 and gives effect to

transactions that are directly attributable to the acquisition.

These amounts are based on financial information of the acquired

business and are not necessarily indicative of what the Company’s operating results would have been had the acquisition taken

place on the date presented, nor is it indicative of the Company’s future operating results.

The net loss of USL acquisition

is included in the Company’s consolidated results since the date of acquisition.

The revenue and net loss of the USL

Acquisition business reflected in the consolidated statements the year ended December 31, 2023 would have been $ 7.6

million and $ 2.4

million, respectively.

Net Product Sales

$ ( 119,905 )

$ ( 130,342 )

The pro forma information

for all periods presented include additional amortization expense related to the fair value of the acquired intangible assets as

if such assets were acquired on January 1, 2022.

The pro forma financial information for the year ended December 31, 2022 also

reflects an increase in Cost of Sales related to the preliminary acquisition-date fair value adjustment to inventory.

As described above,

in connection with the USL Acquisition, the Company and Upsher Smith entered into a Transition Services Agreement with the Seller related

to providing ongoing services associated with the assets acquired, such as procuring and selling migraine therapy products, providing

accounting and billing services and collecting accounts receivable and paying trade payables.

The Seller collected and will continue

to collect cash on behalf of Tonix for revenue generated by sales of the assets acquired from June 30, 2023 through the transition

period and the Seller is obligated to transfer cash generated by such sales to the Buyer.

The amount due to Upsher Smith

for reimbursement of services performed under the transition services agreement was $ 0.5 million as of December 31, 2023.

The transition

service fees were netted against the receivables collected of $ 5.1 million and liabilities paid of $ 4.4 million, including gross-to-net

on behalf of the Company with the net amount due to the Company of $ 0.2 million recorded within prepaid expenses and other on the consolidated

balance sheet as of December 31, 2023.

NOTE 13 – ASSET PURCHASE AGREEMENT WITH HEALION

On February 2, 2023,

the Company entered into an asset purchase agreement (the “Healion Asset Purchase Agreement”) with Healion Bio Inc.,

(“Healion”) 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 consideration for entering into the Healion Asset Purchase Agreement, the Company paid $ 1.2 million to Healion.

the Healion intellectual property was acquired prior to U.S.

Food and Drug Administration (FDA) approval, the cash consideration

totaling $ 1.2 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.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – 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.

December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

12 – LICENSE AGREEMENT WITH UNIVERSITY OF ALBERTA

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, 2023, other than the upfront fee, no payments have been accrued or paid in relation to this

NOTE 15 – LICENSE AGREEMENT WITH

UNIVERSITY OF ALBERTA

On May 18, 2022, the

7 unchanged sentences

accrued or paid in relation to this agreement.

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

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.

14 – LICENSE AGREEMENT WITH INSERM

NOTE 16 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY

On February 13, 2023,

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

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

As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

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

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

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”).

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.

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

As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

16 – SALE OF COMMON STOCK

Tonix exercised an option to obtain an exclusive license from Columbia University (“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 our TNX-3600 and TNX-4100

product candidates, respectively.

The licensed mAbs were developed as part of a research collaboration and option agreement between

Tonix and Columbia.

As of December 31, 2023, other than the upfront fee, no payments have been accrued or paid in relation to this

NOTE 17 – SALE OF COMMON STOCK

December 2023 Financing

December 20, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain

institutional investors, pursuant to which the Company sold and issued (i) 25,343,242 shares of the Company’s common stock,

(ii) pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 28,710,812 shares of common stock and (iii)

Series C warrants to purchase up to 81,081,081 shares of common stock (the “Series C Warrants”), and (iv) Series D

warrants to purchase up to 81,081,081 shares of common stock (the “Series D Warrants” and, together with the Series

C Warrants, the “Common Warrants”).

The securities sold in the offering were sold in fixed combinations as units.

The offering price per share of common stock and accompanying Common Warrants was $ 0.555 , and the offering price per Pre-Funded

Warrant and accompanying Common Warrants was $ 0.5549 .

The offering closed on December 22, 2023, generating gross proceeds of approximately

$ 30 .0 million, before deducting offering expenses of $ 2.3 million payable by the Company.

At the closing of the offering, 6,509,010

Pre-Funded Warrants were immediately exercised into shares of common stock for nominal proceeds.

Pre-Funded Warrants have an exercise price of $ 0.0001

per share, are immediately exercisable subject to certain ownership limitations, and can be exercised at any time until exercised in

The Series C Warrants have an exercise price of $ 0.555

per share, and are exercisable on the later of approval by the Company’s stockholders of (i) a proposal to approve the filing

of an amendment to the Company’s Articles of Incorporation, increasing the number of authorized shares of common stock from 160,000,000

to 1,000,000,000

and (ii) a proposal to allow the Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635 (the later of such

events, the “Approval Date”) and will expire on the later of (a) 10

trading days following the Approval Date and (b) the earlier of (x) the two

year anniversary of the Approval Date and (y) 10

trading days following the public announcement of the U.S.

Food and Drug Administration’s (“FDA”) acknowledgement and

acceptance of the New Drug Application (“NDA”) relating to the Company’s TNX-102 SL product candidate in patients with fibromyalgia.

Warrants have an exercise price of $ 0.85

per share and are exercisable beginning on the Approval Date through the five-year

anniversary of the Approval Date.

the closing of the offering, the Company determined that certain of the Common Warrants did not meet the criteria for equity classification

due to the lack of sufficient authorized and unissued shares to settle the instruments.

The Company has adopted a sequencing approach

under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the classification of its contracts

at issuance and at each subsequent reporting date, whereby shares are allocated based on the earliest issuance date of potentially

dilutive instruments, with the earliest issuance date receiving the first allocation of shares.

In the event of identical issuance

dates, shares are then allocated beginning with instruments with the latest maturity date first.

Pursuant to this sequencing approach,

the Company’s authorized and unissued shares were applied to the Pre-Funded Warrants and the Common Warrants in the following

(i) the Pre-Funded Warrants, (ii) the Series D Warrants, and (iii) the Series C Warrants.

Based on this analysis, the Company

determined that the authorized shares are sufficient to settle the remaining Pre-Funded Warrants and 50,933,271 Series D Warrants

and were therefore classified in equity.

The remaining 30,147,810 Series D Warrants and the Series C Warrants associated with

the deficit shares were classified as liabilities and are accounted for at fair value.

$ 30 .0 million in gross proceeds received by the Company were first allocated to the Series C Warrants and the liability-classified

Series D Warrants at their respective fair values of approximately $ 14.4 million and $ 8.1 million, respectively.

proceeds of approximately $ 7.5 million were allocated to the shares of common stock, the Pre-Funded Warrants, and the equity-classified

Series D Warrants on a relative fair value basis.

The issuance costs totaling $ 2.3 million were allocated between the equity and

liability-classified instruments on a relative fair value basis.

Issuance costs of $ 1.4 million allocated to the shares, the Pre-Funded

Warrants, and the equity-classified Series D Warrants were recognized as a discount to the proceeds allocated to the equity-classified

Issuance costs of $ 0.9 million were allocated to the liability-classified Series D Warrants and the Series C Warrants

and expensed within Selling, general and administrative expense on the consolidated statements of operations.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The liability-classified

Series D Warrants and all of the Series C Warrants are presented within non-current liabilities on the consolidated balance sheets

as of December 31, 2023, and will be adjusted to fair value at each subsequent balance sheet date until the warrants are reclassified

to equity or settled.

Changes in the fair value of the liability-classified warrants are recognized as a component of other income,

net in the consolidated statement of operations.

On January 25, 2024,

the Company’s stockholders approved the proposal to file an amendment to the Company’s Articles of Incorporation to

increase the number of authorized shares of common stock from 160,000,000 to 1,000,000,000 .

September 2023 Financing

September 28, 2023, the Company sold 4,050,000 shares of common stock;

pre-funded warrants to purchase up to 4,950,000 shares

of common stock, and accompanying Series A warrants to purchase up to 9,000,000 shares of common stock with an exercise price

of $ 0.50 per share and expiring five years from date of issuance, and Series B warrants to purchase up to 9,000,000 shares of

common stock with an exercise price of $ 0.50 per share and expiring one year from date of issuance in a public offering, which

closed on October 3, 2023.

The offering price per share of common stock and accompanying warrants was $ 0.50 , and the offering

price per share of pre-funded warrant and accompanying warrants was $ 0.4999 .

Company incurred offering expenses of approximately $ 0.5 million, including placement agent fees of approximately $ 0.3 million.

The Company received net proceeds of approximately $ 4 .0 million, after deducting the underwriting discount and other offering

July 2023 Financing

July 27, 2023, the Company sold 2,530,000 shares of common stock;

pre-funded warrants to purchase up to 4,470,000 shares of common

stock and accompanying common warrants to purchase up to 7,000,000 shares of common stock with an exercise price of $ 1.00 per

share in a public offering that closed on August 1, 2023.

The offering price per share of common stock and accompanying common

warrant was $ 1.00 , and the offering price per share of pre-funded warrant and accompanying common warrant was $ 0.9999 .

Company incurred offering expenses of approximately $ 0.7 million, including placement agent fees of approximately $ 0.5 million.

The Company received net proceeds of approximately $ 6.3 million, after deducting the underwriting discount and other offering

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

PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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

August 16, 2022, the Company entered into an equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”),

pursuant to which Lincoln Park agreed to purchase up to $ 50,000,000 of the Company’s common stock (subject to certain limitations)

from time to time.

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.

The Company issued 100,000 shares of

common stock to Lincoln Park as consideration for its commitment to purchase shares of the Company’s common stock.

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 equity line of credit.

During the year ended

December 31, 2023, the Company sold 0.1 million shares of common stock under the equity line of credit with Lincoln Park, for net

proceeds of approximately $ 0.4 million.

During the year ended December 31, 2022, the Company sold 0.2 million shares of common

stock under the equity line of credit with Lincoln Park, for net proceeds of approximately $ 0.5 million.

Purchase Agreement with Lincoln Park

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 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

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

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

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.

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

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.

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

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.

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

The Company incurred other offering expenses of approximately $ 0.1

The Company received net proceeds of approximately $ 65 .0

million, after deducting the fees and other offering expenses.

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

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

The Company incurred other offering expenses of approximately $ 0.3

The Company received net proceeds of approximately $ 36.9

million, after deducting the fees and other offering expenses.

TONIX PHARMACEUTICALS

HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

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.

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 14,546 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.

the year ended December 31, 2022, the Company sold 0.5 million shares of common stock under the Purchase Agreement with Lincoln

Park, for net proceeds of approximately $ 8.7 million.

No sales occurred in 2023.

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 0.5 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 0.5 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.

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

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

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

17 – STOCK-BASED COMPENSATION

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.

16, 2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp.

2020 Stock Incentive Plan (the “2020

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.

April 8, 2020, the Company entered into a sales agreement with AGP pursuant to which the Company may issue and sell shares of

its common stock having an aggregate offering price of up to $ 320 .0 million in at-the-market offerings (“ATM”) sales

at prevailing market prices at the time of the sale, and, as a result, prices will vary.

AGP receives a 3 % commission on each

ATM sale under the Sales Agreement.

the year ended December 31, 2023, the Company sold approximately 1 .0 million shares of common stock under the Sales Agreement,

for net proceeds of approximately $ 3 .0 million.

During the year ended December 31, 2022, the Company sold approximately 9.1 million

shares of common stock under the Sales Agreement, for net proceeds of approximately $ 85.3 million.

Stock Repurchases

the first quarter of 2023, the Company has repurchased 2,512,044 of its shares of common stock outstanding under the 2022 share

repurchase program for up to $ 12.5 million at prices ranging from $ 2.75 to $ 8.61 per share for a gross aggregate cost of approximately

$ 12.5 million.

In addition, the Company incurred expenses of $ 0.3 million.

January 2023, the Board of Directors approved a new 2023 share repurchase program pursuant to which the Company may repurchase up

to an additional $ 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.

During the first quarter of 2023, the

Company has repurchased 160,000 of our shares of common stock outstanding under the new 2023 share repurchase program at $ 7.12

per share for a gross aggregate cost of $ 1.1 million.

No additional repurchases have occurred since the first quarter of 2023.

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.

NOTE 18 – STOCK-BASED COMPENSATION

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”).

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.

and Restated 2020 Plan initially provided for the issuance of up to 50,000 shares of common stock, which amount will be increased

to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in

the Amended and Restated 2020 Plan).

In addition, the Amended and Restated 2020 Plan contains an “evergreen provision”

providing for an annual increase in the number of shares of our common stock available for issuance under the Amended and Restated

2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021 and ending on (and including) January

1, 2030, in an amount equal to the difference between (x) twenty percent ( 20 %) of the total number of shares of common stock outstanding

on December 31st of the preceding calendar year, and (y) the total number of shares of common stock reserved under the Amended

and Restated 2020 Plan on December 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

As of December 31, 2022, 627,744

options were available for future grants under the Amended and Restated 2020 Plan.

summary of the stock option activity and related information for the Plans for the years ended December 31, 2022, and 2021 is as

Weighted- Average

the Amended and Restated 2020 Plan may not be more than ten years .

As of December 31, 2023, 1,071,599 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 year ended December 31, 2023 is as follows:

Exercise Price

Weighted-Average

Remaining Contractual Term

Aggregate Intrinsic

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value

Outstanding at December 31, 2021

4 unchanged sentences

Exercisable at December 31, 2023

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

per share, respectively.

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

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

weighted average fair value of options granted during the year ended December 31, 2023, and December 31, 2022 was $ 3.99 per share

and $ 32.81 , respectively.

The Company measures

the fair value of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions

discussed below, and the closing market price of the Company’s common stock on the date of the grant.

1 unchanged sentence

award is measured on the grant date.

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.

assumptions used in the valuation of stock options granted during the year ended December 31, 2022 and 2021 were as follows:

One-third of most stock options granted pursuant to the Plans vest 12 months from the date

of grant and 1/36th each month thereafter for 24 months and expire ten years from the date of grant.

In addition, the Company issues

options to directors which vest over a one-year period.

The Company also issues premium options to executive officers which have

an exercise price greater than the grant date fair value and has issued performance-based options which vest when target parameters

are met or probable of being met, subject in each case to a one-year minimum service period prior to vesting.

Stock-based compensation

expense related to awards is amortized over the applicable service period using the straight-line method.

The assumptions used

in the valuation of stock options granted during the year ended December 31, 2023 and 2022 were as follows:

December 31, 2023

December 31, 2022

Risk-free interest rate

3.42 % to 4.35

1.67 % to 3.05

Expected term of option

5.0 to 10 years

5.5 to 10 years

Expected stock price volatility

122.19 % - 142.72

120.32 % - 133.22

Expected dividend yield

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.

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.

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 $ 9.3 million, of which $ 6.4 million and $ 2.9 million, related to General and Administration

and Research and Development, respectively was recognized for the year ended December 31, 2023.

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,

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

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

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”).

of adoption of the 2020 ESPP, as defined below, by the stockholders, no further grants may be made under the 2019 ESPP Plan.

2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2020 Employee Stock Purchase Plan (the “2020

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.

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.

As of December 31,

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

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.

2023, the Company had approximately $ 6.1 million of total unrecognized compensation cost related to non-vested awards granted under

the Plans, which the Company expects to recognize over a weighted average period of 1.70 years.

Employee Stock Purchase Plans

On May 6, 2022, the

Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2022 Employee Stock Purchase Plan.

ESPP"), which was replaced by the Tonix Pharmaceuticals Holdings Corp.

2023 Employee Stock Purchase Plan (the “2023

ESPP”, and together with the 2022 ESPP, the “ESPP Plans”), which was approved by the Company’s stockholders on

The 2023 ESPP allows

eligible employees to purchase up to an aggregate of 800,000 shares of the Company’s common stock.

Under the 2023

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

Each offering period under the 2023 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 2023 ESPP, subject to the statutory limit under the Code.

As of December 31, 2023, 800,000 shares were available

for future sales under the 2023 ESPP.

ESPP Plans are considered compensatory plans with the related compensation cost expensed over the six-month offering period.

the year ended December 31, 2023 and 2022, $ 34,000 and $ 46,000 , respectively, was expensed.

In January 2022, 646 shares that were

purchased as of December 31, 2021, under the 2020 ESPP, were issued.

Accordingly, during the first quarter of 2022, approximately

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

$ 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.

In January 2023, 14,999 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, 2022, related to acquiring such shares, was transferred

from accrued expenses to additional paid in capital.

The remaining $ 14,000 was returned to the employees.

As of December 31, 2023,

approximately $ 44,000 of employee payroll deductions have accumulated and have been recorded in accrued expenses.

2024, 66,359 shares that were purchased as of December 31, 2023, under the 2022 ESPP, were issued.

Accordingly, during the first quarter of 2023, approximately

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.

18 – WARRANTS TO PURCHASE COMMON STOCK

following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at December 31, 2022:

TONIX PHARMACEUTICALS

HOLDING CORP.

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

Accordingly, during the first

quarter of 2024, approximately $ 24,000 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 $ 20,000 was returned to the employees.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 – STOCK WARRANTS

The following table

summarizes information with respect to outstanding warrants to purchase common stock of the Company at December 31, 2023:

December 2025

December 2028

November 2024

February 2025

In connection with

the July 2023 Financing, the Company issued 4,470,000 prefunded common warrants with an exercise price of $ 0.0001 .

All prefunded

common warrants were exercised during the year ended December 31, 2023.

Additionally, the Company issued common warrants to purchase up

to an aggregate of 7,000,000 shares of the Company’s common stock.

The common warrants are exercisable at $ 1.00 per share, expire

five years from the date of issuance.

In connection with the September

2023 Financing, the Company issued 4,950,000

prefunded common warrants with an exercise price of $ 0.0001 .

All prefunded common warrants were exercised during the year ended December 31, 2023.

Additionally, the Company issued common warrants

to purchase up to an aggregate of 18,000,000

shares of the Company’s common stock.

The common warrants are exercisable at $ 0.50

per share, expire five

years from the date of issuance.

In connection with the

December 2023 Financing, the Company issued 28,710,812

prefunded common warrants with an exercise price of $ 0.0001 .

Only 6,509,010

prefunded common warrants were exercised during the year ended December 31, 2023.

Subsequent to December 31, 2023, 15,043,244

prefunded common warrants were exercised.

Additionally, the Company issued Series C common warrants to purchase up to an

aggregate of 81,081,081

shares of the Company’s common stock.

The common warrants are exercisable at $ 0.555

per share, expire two

years from the date of issuance.

Additionally, the Company issued Series D common warrants to purchase up to an

aggregate of 81,081,081

shares of the Company’s common stock.

The common warrants are exercisable at $ 0.85

per share, expire five

years from the date of issuance.

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

warrants with a per share exercise price of $ 630.00

and $ 687.50 ,

respectively, expired.

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.

December 31, 2022, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows

(in thousands):

For the year ended

December 31, 2023, 2,453 warrants with an exercise price of $ 7,000.00 expired.

1, 2024, the Company issued 3,900,000 pre-funded common warrants with an exercise price of $ 0.0001 .

Additionally, the Company issued Series

E warrants to purchase up to 14,666,666 shares of common stock with an exercise price of $ 0.33 per share and expiring five and a half

years from date of issuance.

Additionally, the Company entered

into warrant amendments with certain holders of its Common Warrants.

The exercise price of each Existing Warrant will be amended to $ 0.33

upon approval by the Company’s stockholders of a proposal to allow the Existing Warrants to become exercisable in accordance with

Nasdaq Listing Rule 5635, or as otherwise provided in the Amendment if stockholder approval is not obtained by October 1, 2024.

Upon stockholder

approval, the termination date for Common Warrants to purchase up to an aggregate of 6,950,000 shares will be amended to April 1, 2029 ;

the termination date for Series A Warrants to purchase up to an aggregate of approximately 8,900,000 shares will be April 1, 2029 ;

termination date for Series B Warrants to purchase up to an aggregate of approximately 8,900,000 shares will be April 1, 2029 ;

the termination

date for Series C Warrants to purchase up to an aggregate of approximately 34,823,928 shares will be the earlier of (i) April 1, 2026

and (ii) 10 trading days following notice by the Company to the Series C Warrant holder of the Company’s public announcement of

the FDA’s acknowledgement and acceptance of the Company’s NDA relating to TNX-102 SL in patients with Fibromyalgia;

the termination

date for Series D Warrants to purchase up to an aggregate of approximately 34,823,928 shares will be April 1, 2029 .

The other terms of

the Existing Warrants will remain unchanged.

If stockholder approval is not obtained on or by October 1, 2024, then the Company

has agreed to automatically amend the exercise price of the Existing Warrants to the Minimum Price (as defined in Nasdaq Listing Rule

5635(d)) of the Common Stock on October 1, 2024 if and only if the Minimum Price is below the then current exercise price.

NOTE 20 – LEASES

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, 2023, the Company has right-of-use assets of $ 0.8 million and a total lease liability for operating leases of

$ 0.9 million of which $ 0.6 million is included in long-term lease liabilities and $ 0.3 million is included in current lease liabilities.

During the year ended December 31, 2023, the Company exited a lease which had a right-of-use assets, net of $ 0.2 million and a

total lease liability for operating leases of $ 0.2 million.

At December 31, 2023,

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,

2028 and beyond

Included interest

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

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

based on the present value of the future minimum rental payments.

The Company also recognized corresponding ROU assets of approximately

Operating lease expense was

million for both years ended December 31, 2022 and 2021.

information related to leases was as follows:

Cash paid for amounts included in the

measurement of lease liabilities:

During the year ended

December 31, 2023, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing an

additional operating lease liability of approximately $ 898,000 based on the present value of the minimum rental payments.

also recognized a corresponding increase to ROU assets of approximately $ 898,000 , which represents a non-cash operating activity.

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.

also recognized a corresponding increase to ROU assets of approximately $ 386,000 , which represents a non-cash operating activity.

Other information related to leases is as follows:

Operating lease expense

was $ 0.6 million for both the years ended December 31, 2023 and 2022.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other information related to leases is as follows:

Cash paid for amounts included in the measurement of lease liabilities:

December 31, 2023

December 31, 2022

Operating cash flow from operating leases (in

Operating cash flow from operating leases (in thousands)

Weighted Average Remaining Lease Term

2 unchanged sentences

Operating leases

20 – COMMITMENTS

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.

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.

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

million and $ 0.4

million for the year ended December 31, 2022, and 2021, respectively, for contributions under the 401(k) Plan.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21 – INCOME TAXES –

of the net loss consist of the following (in thousands):

NOTE 21 – COMMITMENTS

Contractual agreements

The Company has entered

into contracts with various contract research organizations with outstanding commitments aggregating approximately $ 23.2 million

at December 31, 2023 for future work to be performed.

Defined contribution plan

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 $ 1.3 million and $ 0.9 million for the year ended December

31, 2023 and 2022, respectively, for contributions under the 401(k) Plan.

NOTE 22 – INCOME TAXES

Components of the net loss consist of the

following (in thousands):

Year ended December 31,

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

million related to the Bermudan operations of Tonix International Holding.

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:

2023, the foreign losses are primarily comprised of $ 98.4 million related to the Irish operations netted against

$ 0.2 million related to Canada operations of Tonix International Holding.

In 2022, the foreign losses are primarily comprised

of the $ 86.7 million related to the Irish operations and $ 1.5 million related to the Bermudan operations of Tonix International

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,

4 unchanged sentences

Income Tax Provision

tax assets (liabilities) and related valuation allowance as of December 31, 2022 and 2021 were as follows (in thousands):

Deferred tax assets

(liabilities) and related valuation allowance as of December 31, 2023 and 2022 were as follows (in thousands):

Deferred tax assets/(liabilities):

4 unchanged sentences

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

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

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

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.

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.

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, 2023 have been reduced to $ 0 .0 million to

reflect IRC section 383 ownership changes through December 31, 2023 and the resulting inability to utilize a portion of the R&D

credit prior to its expiration.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22 – SUBSEQUENT EVENTS

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

per share for a gross aggregate cost of approximately $ 12.5

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

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

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).

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

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

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

ITEM 9 - CHANGES IN AND DISAGREEMENTS

WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

December 31, 2023, the Company has $ 263.4 million of Ireland NOL carryforwards that do not expire.

As of December 31, 2023, the

Company’s Federal NOL carryforwards of $ 0.2 million, which do not expire.

The Company has New Jersey NOL carryforwards of $ 0.2

million, Massachusetts NOL carryforwards of $ 0.01 million, and Montana NOL carryforwards of $ 0.05 million, all of which expire

in 20 years , are subject to annual limitations in their use in accordance with IRC section 382.

The NOL carryforwards at December

31, 2023 have been reduced to reflect IRC section 382 ownership changes through December 31, 2023 and the resultant inability

due to annual limitations, to utilize a portion of the NOL prior to its expiration.

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, 2023.

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.

increase/(decrease) in the valuation allowance for the years ended December 31, 2023 and 2022 were $ 14.5 million, and $ 9.5 million

respectively.

The Company recognizes

interest accrued related to unrecognized tax benefits and penalties as income tax expense.

However, as of December 31, 2023 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, 2023, the Company’s tax returns remain open and subject to examination by the tax authorities

for the tax years 2020 and after.

NOTE 23 – SUBSEQUENT EVENTS

On January 25, 2024, the

Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada

to increase the number of authorized shares of the Company’s common stock from 160,000,000 to 1,000,000,000 shares.

The Amendment

was approved by the Company’s shareholders at a special meeting of shareholders held on January 25, 2024.

On February 27, 2024,

the Company granted options to purchase an aggregate of 4,261,104 shares of the Company’s common stock to employees with

an exercise price of $ 0.37 , 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 2,860,680 shares of the Company’s common stock to certain

employees with an exercise price of $ 0.46 , with a term of ten years , vesting 1/3 on the first anniversary and 1/36 th each

month thereafter for 24 months.

Finally, the Company granted options to purchase 1,309,911 shares of the Company’s common

stock to an employee with an exercise price of $ 0.37 , with a term of ten years , vesting in 6 months.

28, 2024, the Company sold 10,766,666 shares of common stock, pre-funded warrants to purchase up to 3,900,000 shares of common stock,

and accompanying Series E warrants to purchase up to 14,666,666 shares of common stock with an exercise price of $ 0.33 per share and expiring

five and a half years from date of issuance in a public offering, which closed on April 1, 2024.

The offering price per share of common

stock was $ 0.30 , accompanying warrants was $ 0.33 , and the offering price per share of pre-funded warrants was $ 0.2999 .

incurred offering expenses of approximately $ 0.5 million, including placement agent fees of approximately $ 0.3 million.

The Company received

net proceeds of approximately $ 3.9 million, after deducting the underwriting discount and other offering expenses.

Additionally, the Company entered

into warrant amendments with certain holders of its Common Warrants.

The exercise price of each Existing Warrant will be amended to $ 0.33

upon approval by the Company’s stockholders of a proposal to allow the Existing Warrants to become exercisable in accordance with

Nasdaq Listing Rule 5635, or as otherwise provided in the Amendment if stockholder approval is not obtained by October 1, 2024.

Upon stockholder

approval, the termination date for Common Warrants to purchase up to an aggregate of 6,950,000 shares will be amended to April 1, 2029 ;

the termination date for Series A Warrants to purchase up to an aggregate of approximately 8,900,000 shares will be April 1, 2029 ;

termination date for Series B Warrants to purchase up to an aggregate of approximately 8,900,000 shares will be April 1, 2029 ;

the termination

date for Series C Warrants to purchase up to an aggregate of approximately 34,823,928 shares will be the earlier of (i) April 1, 2026

and (ii) 10 trading days following notice by the Company to the Series C Warrant holder of the Company’s public announcement of

the FDA’s acknowledgement and acceptance of the Company’s NDA relating to TNX-102 SL in patients with Fibromyalgia;

the termination

date for Series D Warrants to purchase up to an aggregate of approximately 34,823,928 shares will be April 1, 2029 .

The other terms of

the Existing Warrants will remain unchanged.

If stockholder approval is not obtained on or by October 1, 2024, then the Company

has agreed to automatically amend the exercise price of the Existing Warrants to the Minimum Price (as defined in Nasdaq Listing Rule

5635(d)) of the Common Stock on October 1, 2024 if and only if the Minimum Price is below the then current exercise price.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data