What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-09 · 537 added, 514 removed, 78 unchanged (93% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements

that reflect Management’s current views with respect to future events and financial performance.

You can identify these statements

by forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,”

“estimate” “continue,” or similar words.

Those statements include statements regarding the intent, belief

or current expectations of us and members of its management team as well as the assumptions on which such statements are based.

investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties,

and that actual results may differ materially from those contemplated by such forward-looking statements.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s

Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect

Management’s current views with respect to future events and financial performance.

You can identify these statements by

forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,”

“estimate” and “continue,” or similar words.

Those statements include statements regarding the intent,

belief or current expectations of us and members of its management team as well as the assumptions on which such statements are

Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and

involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

Readers are urged

11 unchanged sentences

differences include, but are not limited to:

risks related to our ability to successfully commercialize our products, failure to

obtain clearances or approvals from the United States Food and Drug Administration, or FDA, and noncompliance with FDA regulations;

our need for additional financing;

substantial competition;

uncertainties of patent protection and litigation;

uncertainties of

government or third party payor reimbursement;

limited research and development efforts and dependence upon third parties and those

discussed in the section titled “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended

December 31, 2022 and in our other SEC filings, as may be amended, supplemented or superseded from time to time by other reports

we file with the SEC.

is a biopharmaceutical company focused on commercializing, developing, discovering and licensing therapeutics to treat and prevent

human disease and alleviate suffering.

Tonix Medicines, our commercial subsidiary, markets

Zembrace® SymTouch® (sumatriptan injection) 3 mg and Tosymra® (sumatriptan nasal spray) 10 mg under a

transition services agreement with Upsher-Smith Laboratories, LLC from whom the products were acquired on June 30, 2023.

SymTouch and Tosymra are each indicated for the treatment of acute migraine with or without aura in adults.

development portfolio is composed of central nervous system (CNS), rare disease, immunology and infectious disease product

Tonix’s CNS development portfolio includes both small molecules and biologics to treat pain, neurologic,

psychiatric and addiction conditions.

Tonix’s lead development CNS candidate, TNX-102 SL (cyclobenzaprine HCl sublingual

tablet), is in mid-Phase 3 development for the management of fibromyalgia, having completed enrollment of a potentially confirmatory

Phase 3 study in the third quarter of 2023, with topline data expected in late December 2023.

TNX-102 SL is also being developed to

treat fibromyalgia-type Long COVID, a chronic post-acute COVID-19 condition, and topline results were reported in the third quarter

TNX-1900 (intranasal potentiated oxytocin), is in development as a

preventive treatment in chronic migraine, and the clinical phase of a Phase 2 proof-of-concept study is now completed with topline

data expected in early December 2023.

TNX-1900 is also being studied in binge eating disorder, pediatric obesity and social anxiety

disorder by academic collaborators under investigator-initiated INDs.

TNX-1300 (cocaine esterase) is a biologic designed to treat

cocaine intoxication and has been granted Breakthrough Therapy designation by the FDA.

A Phase 2 study of TNX-1300 is expected to be

initiated in the fourth quarter of 2023.

Tonix’s rare disease development portfolio includes TNX-2900 (intranasal potentiated

oxytocin) for the treatment of Prader-Willi syndrome.

TNX-2900 has been granted Orphan Drug designation by the FDA.

immunology development portfolio includes biologics to address organ transplant rejection, autoimmunity and cancer, including

TNX-1500, which is a humanized monoclonal antibody targeting CD40-ligand (CD40L or CD154) being developed for the prevention of

allograft rejection and for the treatment of autoimmune diseases.

A Phase 1 study of TNX-1500 was initiated in the third quarter of

Tonix’s infectious disease pipeline includes TNX-801, a vaccine in development to prevent smallpox and mpox.

also serves as the live virus vaccine platform or recombinant pox vaccine platform for other infectious diseases, including

TNX-1800, in development as a vaccine to protect against COVID-19.

In the fourth quarter of 2023, TNX-1800 was selected by the U.S.

National Institutes of Health (NIH), National Institute of Allergy and Infectious Diseases (NIAID) Project NextGen for inclusion in Phase 1 clinical trials.

The infectious disease development portfolio also includes

TNX-3900 and TNX-4000, which are classes of broad-spectrum small molecule oral antivirals.

product development candidates are investigational new drugs or biologics and have not been approved for any indication.

of Operations

anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress of our

research and development efforts and the timing and outcome of regulatory submissions.

Due to these uncertainties, accurate predictions

of future operations are difficult or impossible to make.

Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Company recognized revenue from customers beginning in the three months period ended September 30, 2023 as a result of the Upsher

Smith acquisition.

See discussion at Note 10 to our interim condensed financial statements appearing in this Quarterly Report on

Revenue recognized for the three months ended September 30, 2023 was $4.0 million.

Company’s net product revenues are summarized below:

Three Months Ended September 30,

risks related to the failure to

obtain FDA clearances or approvals and noncompliance with FDA regulations;

risks related to the failure to successfully market any of

our products;

risks related to the timing and progress of clinical development of our product candidates;

uncertainties of patent protection

and litigation;

uncertainties of government or third party payor reimbursement;

limited research and development efforts and dependence

upon third parties;

and substantial competition.

Business Overview

We are a fully-integrated biopharmaceutical company focused on developing,

licensing and commercializing therapeutics to treat and prevent human disease and alleviate suffering.

Tonix’s development portfolio

is focused on central nervous system (CNS) disorders.

Tonix’s priority is to submit a New Drug Application (NDA) to the FDA in the

second half of 2024 for Tonmya™, a product candidate for which two pivotal Phase 3 studies have been completed for the management of fibromyalgia.

Tonix has a pre-NDA meeting scheduled with the FDA in the second quarter of 2024.

TNX-102 SL is also being developed to treat acute stress

reaction as well as fibromyalgia-type Long COVID.

Tonix’s CNS portfolio includes TNX-1300 (cocaine esterase), a biologic designed

to treat cocaine intoxication that has Breakthrough Therapy designation.

Tonix’s immunology development portfolio consists of biologics

to address organ transplant rejection, autoimmunity and cancer, including TNX-1500, which is a humanized monoclonal antibody targeting

CD40-ligand (CD40L or CD154) being developed for the prevention of allograft rejection and for the treatment of autoimmune diseases.

also has product candidates in development in the areas of rare disease and infectious disease.

Tonix Medicines, our commercial subsidiary,

markets Zembrace® SymTouch® (sumatriptan injection) 3 mg and Tosymra® (sumatriptan nasal spray) 10 mg for the treatment of

acute migraine with or without aura in adults.

All of our product

candidates are investigational new drugs or biologics and have not been approved for any indication.

Tonmya has been conditionally accepted by the U.S.

Food and Drug Administration

(FDA) as the tradename for TNX-102 SL for the management of fibromyalgia.

Tonmya has not been approved for any indication.

Zembrace SymTouch and

Tosymra are registered trademarks of Tonix Medicines.

All other marks are the property of their respective owners.

Results of Operations

We anticipate that

our results of operations will fluctuate for the foreseeable future due to several factors, such as the sale of our commercialized

assets, progress of our research and development efforts and the timing and outcome of regulatory submissions.

Due to these uncertainties,

accurate predictions of future operations are difficult or impossible to make.

Since the acquisition of Zembrace and Tosymra on

June 30, 2023, we are now reporting product revenue and related costs.

Three Months Ended March 31, 2024

Compared to Three Months Ended March 31, 2023

The following table sets forth our operating

expenses for the quarter ended March 31, 2024 and 2023 (in thousands):

Quarter Ended March 31,

Product revenue, net

COSTS AND EXPENSES:

Cost of sales

Research and development

General and administrative

Total operating expenses

Operating loss

Other income, net

Company recognized revenue beginning in July 2023, as a result of the acquisition of two marketed products.

Revenue recognized

for the quarter ended March 31, 2024, was $2.5 million.

The Company’s net product revenues are summarized below:

Quarter Ended March 31,

Zembrace Symtouch

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Cost of Sales .

Company recognized cost of sales beginning in the three months period ended September 30, 2023 as a result of the Upsher Smith

See discussion at Note 10 to our interim condensed financial statements appearing in this Quarterly Report on Form

Cost of sales recognized for the three months ended September 30, 2023 was $2.4 million.

and Development Expenses .

Research and development expenses for the three months ended September 30, 2023 were $21.1 million,

a decrease of $1.1 million, or 5%, from $22.2 million for the three months ended September 30, 2022.

This decrease is predominately due

to decreased non-clinical expenses of $1.6 million, manufacturing expenses of $2.9 million, offset by an increase in clinical expenses

of $1.5 million, an increase in employee-related expenses and professional fees of $1.0 million, office-related expenses of $0.7 million

and lab supplies of $0.2 million.

table below summarizes our direct research and development expenses for our product candidates and development platform for the three

months ended September 30, 2023, and 2022.

Three months ended September 30,

Company recognized cost of sales beginning in July 2023 as a result of the acquisition of Zembrace and Tosymra from Upsher Smith.

Cost of sales recognized for the quarter ended March 31, 2024, was $1.7 million.

Development Expenses .

Research and development expenses for the three months ended March 31,

2024, were $12.9 million, a decrease of $13.6 million, or 51%, from $26.5 million for the three months ended March 31, 2023.

is predominately due to decreased clinical expenses of $5.0 million, non-clinical expenses of $4.2 million, and manufacturing expenses

of $0.9 million as a result of fewer trials in the clinic and pipeline prioritization period over period, employee-related expenses of

$0.8 million and lab supplies of $1.8 million, due to a reduction in expenditures.

The table below summarizes

our direct research and development expenses for our product candidates and development platform for the quarters ended March 31,

2024, and 2023.

(in thousands)

5 unchanged sentences

Direct expenses – TNX - 1500

Direct expenses – TNX - 1800

Direct expenses – TNX - 1900

Direct expenses – TNX - 3900

Direct expenses – Other programs

7 unchanged sentences

travel, regulatory and legal.

and Administrative Expenses .

General and administrative expenses for the three months ended September 30, 2023 were

$8.7 million, an increase of $1.3 million, or 18%, from $7.4 million incurred in the three months ended September 30, 2022.

increase is primarily due to sales and marketing of $1.3 million, transition services agreement fees payable to Upsher-Smith Laboratories,

LLC (“USL”) of $0.7 million, an increase in amortization expenses of $0.2 million, offset by a decrease in financial

reporting expenses of $0.6 million and payroll-related expenses of $0.4 million.

As a result of the foregoing, the net loss for the three months ended September 30, 2023 was $28.0 million, compared to

a net loss of $29.0 million for the three months ended September 30, 2022.

Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Company recognized revenue from Customers beginning in the nine months period ended September 30, 2023 as a result of the Upsher

Smith acquisition.

See discussion at Note 10 to our interim condensed financial statements appearing in this Quarterly Report on

Revenue recognized for the nine months ended September 30, 2023 was $4.0 million.

The Company’s net product revenues are summarized below:

Nine Months Ended September 30,

Zembrace® Symtouch®

Total product revenues

Cost of Sales .

Company recognized cost of sales beginning in the nine months period ended September 30, 2023 as a result of the Upsher Smith acquisition.

See discussion at Note 10 to our interim condensed financial statements appearing in this Quarterly Report on Form 10-Q.

sales recognized for the nine months ended September 30, 2023 was $2.4 million

and Development Expenses .

Research and development expenses for the nine months ended September 30, 2023 were $69.5 million,

an increase of $12.3 million, or 22%, from $57.2 million for the nine months ended September 30, 2022.

This increase is predominately

due to increased clinical expenses of $6.9 million, employee-related expenses of $3.7 million, office-related expenses of $3.5 million

and lab supplies of $2.7 million, offset by a decrease in manufacturing costs of $6.1 million and non-clinical expenses of $0.2 million.

table below summarizes our direct research and development expenses for our product candidates and development platform for the nine

months ended September 30, 2023, and 2022.

Nine months ended September 30,

(in thousands)

Research and development expenses:

Direct expenses – TNX - 102 SL

Direct expenses – TNX - 601 ER

Direct expenses – TNX - 801

Direct expenses – TNX - 1800

Direct expenses – TNX - 1500

Direct expenses – TNX - 1900

Direct expenses – Other programs

Internal staffing, overhead and other

Total research & development

direct research and development expenses consist principally of external costs for clinical, nonclinical and manufacturing, such as fees

paid to contractors, consultants and CROs in connection with our development work.

Included in “Internal Staffing, Overhead and

Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel, regulatory and

and Administrative Expenses .

General and administrative expenses for the nine months ended September 30, 2023 were $23.1

million, an increase of $0.9 million, or 4%, from $22.2 million incurred in the nine months ended September 30, 2022.

The increase is

primarily due to sales and marketing of $1.3 million, and transition services agreement fees payable to USL of $0.7 million, depreciation

expenses of $0.3 million and accounting-related expenses of $0.3 million, offset by a decrease in financial reporting expenses of $1.8

million and compensation-related expenses of $0.2 million.

As a result of the foregoing, the net loss for the nine months ended September 30, 2023 was $89.3 million, compared to

a net loss of $78.5 million for the nine months ended September 30, 2022.

On February 13, 2023,

we exercised an option to obtain an exclusive license from Columbia for the development of a portfolio of 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 us and Columbia.

On December 12, 2022,

we 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.

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.

September 30, 2023, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

On May 18, 2022, we

entered into an exclusive license agreement with the University of Alberta focused on identifying and testing broad-spectrum antiviral

drugs against future variants of SARS-CoV-2 and other emerging viruses.

As consideration for entering into the license agreement,

we paid a low-five digit license fee to University of Alberta.

The license agreement also provides for single-digit royalties and

contingent milestone payments.

As of September 30, 2023, other than the upfront fee, no payments have been accrued or paid in relation

to this agreement.

General and Administrative

General and administrative expenses for the three months ended March

31, 2024, were $9.3 million, an increase of $1.9 million, or 26%, from $7.4 million incurred in the three months ended March 31, 2023.

The increase is primarily due to an increase in financial reporting expenses of $0.6 million, related to the special shareholder meetings

in Q1 2024, an increase in sales and marketing of $0.4 million, and transition services agreement fees payable to Upsher Smith of $0.7

a result of the forgoing, the net loss for the three months ended March 31, 2024, was $14.9 million, compared to a net loss of

$33.0 million for the three months ended March 31, 2023, a decrease of $18.1 million or 55%.

February 13, 2023, we exercised an option to obtain an exclusive license from Columbia for

the development of a portfolio of 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 us and Columbia.

As of March 31, 2024, other than the upfront fee, no payments have been accrued

or paid in relation to this agreement.

Purchase Agreements

On June 23, 2023, we

entered into an asset purchase agreement with USL for the acquisition of certain assets 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 (such transaction, the “USL Acquisition”).

On June 23, 2023, we entered into an asset purchase agreement with

Upsher Smith for the acquisition of certain assets related to Zembrace and Tosymra (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 (such transaction, the “USL Acquisition”).

The transaction closed on June 30, 2023.

Additionally, in connection

with the USL Acquisition, we and USL entered into a transition services agreement pursuant to which USL will provide certain transition

services to us for base fees equal to $100,000 per month for the first six months, and $150,000 per month for the seventh through

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

As the assets acquired

met the definition of a business under the current accounting guidance, the total purchase price was allocated to the acquired

inventory and other tangible assets, and the developed technology intangible assets related to Zembrace and Tosymra based on their

estimated fair values on the acquisition date.

The excess of the purchase price over the fair value of the acquired assets was

recorded as goodwill.

have assumed certain obligations of USL, including the payment of quarterly earn-out payments on annual net sales from the Business

Additionally,

in connection with the acquisition from Upsher Smith, we and Upsher Smith entered into a transition services agreement pursuant to which

Upsher Smith agreed to provide certain transition services to us for base fees equal to $100,000 per month for the first six months,

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

We have signed an amendment to the transitional services agreement with Upsher Smith so that Upsher Smith will continue to

manage certain government rebates, and Upsher Smith will be reimbursed by us at cost for any rebates they pay on our behalf.

the assets acquired from Upsher Smith met the definition of a business under the current accounting guidance, the total purchase

price was allocated to the acquired inventory and other tangible assets, and the developed technology intangible assets related

to Zembrace and Tosymra based on their estimated fair values on the acquisition date.

The excess of the purchase price over the

fair value of the acquired assets was recorded as goodwill.

have assumed certain obligations of Upsher Smith, including the payment of quarterly royalty 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;

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;

Royalty 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, royalty 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 for Tosymra.

16% for net sales

of greater than $100 million.

Such royalty payments are payable until July 19, 2025.

Upon the entry of a generic version of the

relevant product, the applicable royalty rates will be reduced by 90% percent for Zembrace, and by 66.7% percent for Tosymra.

addition, we have 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.

February 2, 2023, we entered into an asset purchase agreement (the “Healion Purchase Agreement”) with Healion

Bio Inc., pursuant to which we acquired all the pre-clinical infectious disease assets of

As consideration for entering into the Healion Purchase Agreement, we paid $1.2 million to Healion.

Healion intellectual property was acquired prior to 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

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.

February 2, 2023, we entered into an asset purchase agreement with Healion Bio Inc., pursuant

to which we acquired all the pre-clinical infectious disease assets of Healion for $1.2 million.

Because the Healion intellectual

property was acquired prior to FDA approval, the $1.2 million cash 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.

and Capital Resources

of September 30, 2023, we had working capital of $13.6 million, comprised primarily of cash and cash equivalents of $6.9 million, inventory

of $13.3 million, receivables, net of $1.6 million and prepaid expenses and other of $9.5 million, offset by $7.8 million of accounts payable, $9.5 million of accrued

expenses and current lease liabilities of $0.4 million.

A significant portion of the accounts payable and accrued expenses are due to

work performed in relation to our clinical programs, and the USL Acquisition.

following table provides a summary of operating, investing and financing cash flows for the nine months ended September 30, 2023, and

As of March 31, 2024, we had working capital of $9.6 million, comprised

primarily of cash and cash equivalents of $7.0 million, inventory of $12.4 million, and prepaid expenses and other of $10.7 million, offset

by $6.6 million of accounts payable, $10.7 million of accrued expenses and other current liabilities, $2.8 million of term loan payable,

short term and $0.3 million of lease liabilities, short term.

A significant portion of the accounts payable and accrued expenses are due

to work performed in relation to our clinical programs, and the acquisition of Zembrace and Tosymra.

During the fourth quarter of 2023,

we engaged CBRE, an international real estate brokerage firm, to potentially find a strategic partner for, or buyer of, our Advanced Development

Center in North Dartmouth, Massachusetts (“ADC”), to align with our current business objectives and priorities.

we do not have a commitment in place to sell the building.

following table provides a summary of operating, investing and financing cash flows for the quarters ended March 31, 2024, and

2023, respectively (in thousands):

September 30,

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

the nine months ended September 2023 and 2022, we used approximately $79.7 million and $75.8 million of cash in operating activities,

cash used in operating activities

cash used in investing activities

cash used in financing activities

the three months ended March 31, 2024, and 2023, we used approximately $17.6 million and $32.9 million of cash in operating activities,

respectively, which represents cash outlays for research and development and general and administrative expenses in such periods.

increase in cash outlays principally resulted from an increase in both research and development and general and administrative activities.

For the nine months ended September 30, 2023, net cash used from financing activities was $4.2 million predominately from the repurchase

of common stock.

For the nine months ended September 30, 2022, net proceeds in financing activities was $80.6 million, predominately

from the sale of our common and preferred stock.

Cash used in investing activities for the nine months ended September 30, 2023 was $28.6

related to the purchase of the USL assets and property and equipment, and $43.5 million for the nine months ended September 30, 2022

related to the purchase of property and equipment.

believe that our cash resources at September 30, 2023, and the proceeds that we raised from equity offerings subsequent to the end

of the third quarter of 2023 will not meet our operating and capital expenditure requirements through the fourth quarter of 2023.

We continue to face significant challenges and uncertainties and, as a

result, our available capital resources may be consumed more rapidly than currently expected due to changes we may make in our research

and development spending plans.

These factors raise substantial doubt about our ability to continue as a going concern for the one year

period from the date of filing of this Form 10-Q.

We must obtain additional funding through public or private financing or collaborative

arrangements with strategic partners to increase the funds available to fund operations.

Without additional funds, we may be forced to

delay, scale back or eliminate some of our research and development activities, or other operations and potentially delay product development

in an effort to provide sufficient funds to continue our operations.

If any of these events occurs, our ability to achieve our development

and commercialization goals would be adversely affected and we may be forced to cease operations.

The decrease in cash outlays principally resulted from a decrease in research and development activities.

For the three months

ended March 31, 2024, net cash used by financing activities were $0.2 million, predominately from the repayment of the term loan.

For the three months ended March 31, 2023, net cash used by financing activities were $11.5 million, predominately from the repurchase

of our common stock.

Cash used by investing activities for the three months ended March 31, 2024, and 2023, was $0.1 million and

$3.8 million respectively, related to the purchase of property and equipment.

The decrease is predominately due to less property

and equipment purchases as the ADC and RDC were placed in service during 2022.

believe that our cash resources at March 31, 2024, and the proceeds that we raised from equity offerings subsequent to the end

of the first quarter of 2024, will not meet our operating and capital expenditure requirements through the second quarter of 2024.

continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more

rapidly than currently expected due to changes we may make in our research and development spending plans.

These factors raise

substantial doubt about our ability to continue as a going concern for the one-year period from the date of filing of this Form

We must obtain additional funding through public or private financing or collaborative arrangements with strategic partners

to increase the funds available to fund operations.

Without additional funds, we may be forced to delay, scale back or eliminate

some of our research and development activities, or other operations and potentially delay product development to provide sufficient

funds to continue our operations.

If any of these events occurs, our ability to achieve our development and commercialization

goals would be adversely affected and we may be forced to cease operations.

Liquidity Requirements

1 unchanged sentence

We expect to incur increasing research and development expenses, including

expenses related to additional clinical trials and the buildout of our research and development operations and manufacturing.

not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates,

the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing

patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success

in developing markets for our product candidates.

will need to obtain additional capital in order to fund future research and development activities and future capital expenditures.

financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.

we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant

amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

Furthermore, if we

issue additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,

expenses related to additional clinical trials and the build out of our research and development operations and manufacturing.

We will not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our future capital requirements

will depend on a number of factors, including the availability of financing, the timing and outcome of regulatory approvals, the progress

of our research and development of product candidates, the costs involved in preparing, filing, prosecuting, maintaining, defending and

enforcing patent claims and other intellectual property rights, the status of competitive products, and our success in developing markets

for our product candidates.

will need to obtain additional capital in order to fund future research and development activities.

Future financing may include

the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.

Even if we are able to

raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts

owed to us, or experience unexpected cash requirements that would force us to seek alternative financing.

Furthermore, if we issue

additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,

preferences or privileges senior to those of existing holders of our common stock.

additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate

our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners

or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize

independently.

Repurchase Program

During the first quarter of 2023,

we repurchased 2,512,044 of our 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, we incurred

expenses of $0.3 million.

January 2023, the Board of Directors approved a new 2023 share repurchase program pursuant

to which we may repurchase up to an additional $12.5 million in value of our 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.

the first quarter of 2023, we 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 share repurchases occurred in the third quarter of 2023.

Redeemable Preferred stock

October 26, 2022, we issued 1,400,000 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock to certain

institutional investors in a private placement.

The Preferred Stock had an aggregate stated value of $15,000,000.

Each share of

the Preferred Stock had a purchase price of $9.50, representing an OID of 5% of the stated value.

The shares of the preferred stock

were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $6.25 per share.

outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed

in December 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $15.8 million in the aggregate.

June 24, 2022, we issued 2,500,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock to certain

institutional investors in a private placement.

The Preferred Stock had an aggregate stated value of $30,000,000.

Each share of

the Preferred Stock had a purchase price of $9.50, representing an OID of 5% of the stated value.

The shares of the preferred stock

were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $25.00 per share.

outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed

in August 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $31.5 million in the aggregate.

additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of

or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements

with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise

seek to develop or commercialize independently.

2024 Financing

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

pre-funded warrants

to purchase up to 4,950,000 shares of common stock, and accompanying common 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, and common 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 in a public offering which closed on October 3, 2023.

The offering price per

share of common stock and accompanying common warrant was $0.50, and the offering price per share of pre-funded warrant and accompanying

common warrant was $0.4999.

We incurred other offering expenses of approximately $0.5 million, which included a placement agent discount.

We received net proceeds

of approximately $4.0 million, after deducting the underwriting discount and other offering expenses.

March 28, 2024, we entered into an agreement to sell 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

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

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

Additionally, with the

closing of the financing on April 1, 2024, we entered into warrant amendments with certain holders of our Common Warrants.

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.

Stockholders will vote on this proposal on May 22, 2024.

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;

the 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 our 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.

2023 Financing

July 27, 2023, we sold securities consisting of 2,530,000 shares of common stock;

December 20, 2023, we issued (i) 25,343,242 shares of our 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”) in a registered direct

The securities 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.

closed on December 22, 2023, generating gross proceeds of approximately $30.0 million, before deducting offering expenses of $2.3

million payable by us.

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 full.

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 FDA’s acknowledgement and acceptance of the NDA relating to TNX-102 SL in patients with fibromyalgia.

D 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.

September 2023 Financing

On September 28, 2023, we sold 4,050,000

shares of common stock;

pre-funded warrants to purchase up to 4,950,000 shares of common stock, and accompanying common 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, and common

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 in a public offering which closed on October 3, 2023.

The offering price per share of common stock and accompanying common

warrant was $0.50, and the offering price per share of pre-funded warrant and accompanying common warrant was $0.4999.

We incurred other offering expenses of

approximately $0.5 million, including a placement agent discount.

We received net proceeds of approximately $4.0 million, after deducting

the underwriting discount and other offering expenses.

July 2023 Financing

On July 27, 2023,

we sold securities consisting of 2,530,000 shares of common stock;

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

and common warrants to purchase up to 7,000,000 shares of common stock in a public offering that closed on August 1, 2023.

The offering price per Share and accompanying Common Warrant

is $1.00, and the offering price per Pre-Funded Warrant and accompanying Common Warrant is $0.9999.

We incurred other offering expenses of approximately $0.7 million, which included a placement agent discount.

net proceeds of approximately $6.3 million, after deducting the underwriting discount and other offering expenses.

Lincoln Park Transaction

On August 16, 2022,

we entered into a purchase agreement (the “2022 Purchase Agreement”) and a registration rights agreement with Lincoln

Park, pursuant to which Lincoln Park agreed to purchase from us up to $50,000,000 of our common stock (subject to certain limitations)

from time to time.

We filed a registration statement to register for resale the shares that have been or may be issued to Lincoln

Park under the 2022 Purchase Agreement.

We issued 100,000 shares

of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2022 Purchase

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.

the three and nine months ended September 30, 2023, we sold 0 and 0.1 million shares, respectively, of common stock under the 2022 Purchase

Agreement, for net proceeds of approximately $0 and $0.4 million, respectively.

During the nine months ended September 30, 2022,

no shares of common stock were sold under the 2022 Purchase Agreement.

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

common warrant was $0.9999.

We incurred offering expenses of approximately

$0.7 million, including placement agent fees of approximately $0.5 million.

We received net proceeds of approximately $6.3 million, after

deducting the underwriting discount and other offering expenses.

Lincoln Park Transaction

On December 3, 2021,

we entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement with Lincoln

Park, pursuant to which Lincoln Park has agreed to purchase from us up to $80,000,000 of our common stock (subject to certain limitations)

from time to time.

We filed a registration statement to register for resale the shares that have been or may be issued to Lincoln

Park under the 2021 Purchase Agreement.

We issued 14,546 shares

of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2021 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

During the nine months

ended September 30, 2022, we sold 0.5 million shares of common stock under the 2021 Purchase Agreement with Lincoln Park, for net

proceeds of approximately $8.7 million.

No sales occurred in 2023, and we may not sell any additional shares under the 2021 Purchase

August 16, 2022, we 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”).

to the terms of the 2022 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $50,000,000 of our 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, we 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.

to the terms of the 2022 Purchase Agreement, at the time we signed the 2022 Purchase Agreement and the 2022 Registration Rights

Agreement, we issued 100,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of

our 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.

sales under the 2022 Purchase Agreement occurred during the quarter ended March 31, 2024.

During the quarter ended March 31, 2023,

we sold 0.1 million shares of common stock under the 2022 Purchase Agreement, for net proceeds of approximately $0.4 million.

At-the-Market

April 8, 2020, we entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which we may issue and sell,

from time to time, shares of our common stock having an aggregate offering price of up to $320.0 million in at-the-market offerings (“ATM”)

AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement.

Our common stock will be

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

During the three and nine months ended

September 30, 2023, we sold approximately 0 million and 1.0 million shares, respectively, of common stock under the Sales Agreement,

for net proceeds of approximately $0 million and $3.0 million, respectively.

During the three and nine months ended September 30, 2022,

we sold approximately 3.1 million and 5.5 million shares, respectively, of common stock under the Sales Agreement, for net proceeds of

approximately $43.0 million and $76.2 million, respectively.

April 8, 2020, we entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which we may issue and

sell, from time to time, shares of our 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

Our common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.

No shares of common stock under the Sales Agreement were sold during the quarter ended March 31, 2024.

During the quarter ended

March 31, 2023, we sold approximately 0.5 million shares of common stock under the Sales Agreement, for net proceeds of approximately

$2.0 million.

During the quarter ended March 31, 2024, no shares of common stock under the Sales Agreement were sold.

Repurchase Program

During the quarter ended March 31, 2023 , we repurchased 2,512,044

of our shares of common stock outstanding under a $12.5 million share purchase program at

prices ranging from $2.75 to $8.61 per share for a gross aggregate cost of approximately

$12.5 million.

In addition, we incurred expenses of $0.3 million.

January 2023, the Board of Directors approved a new 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 quarter ended March 31, 2023,

we repurchased 160,000 of our shares of common stock

outstanding under the new share repurchase program at $7.12 per share for a gross aggregate cost of $1.1 million.

December 8, 2023, we executed a Loan and Guaranty Agreement (the “Loan Agreement”) to issue a 36-month term loan (the

“Term Loan”) in the principal amount of $11.0 million with a maturity date of December 8, 2026 (the “Maturity

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

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,

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

deposit is reflected as prepaid and other current assets on the consolidated balance sheet.

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

In addition, we 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.

We 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.

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

Loan Agreement contains customary affirmative and negative covenants by us, which among other things, will require us to provide

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

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.

Our obligations 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 our R&D Center in Frederick, Maryland, the Advanced Development Center in North Dartmouth, Massachusetts,

and substantially all of the relevant deposit accounts.

of March 31, 2024, 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.

Incentive Plans

May 1, 2020, our 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, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock

appreciation rights (“SARs”), (4) restricted stock units, (5) other stock-based awards, and (6) cash-based awards.

Amended and Restated 2020 Stock Incentive Plan

(“Amended and Restated 2020 Plan”).

the terms of the Amended and Restated 2020 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock,

(3) stock appreciation rights (“SARs”), (4) restricted stock units, (5) other stock-based awards, and (6) cash-based

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

1 unchanged sentence

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

Amended and Restated 2020 Plan on December 31 st of such preceding calendar year (including shares subject to outstanding

awards, issued pursuant to awards or available for future awards).

The Board of Directors determines the exercise price, vesting

and expiration period of the grants under the Amended and Restated 2020 Plan.

However, the exercise price of an incentive stock

option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder and 100%

of fair value for a grantee who is not a 10% shareholder.

The fair value of the common stock is determined based on quoted market

price or in absence of such quoted market price, by the Board of Directors in good faith.

Additionally, the expiration period of

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

As of September 30, 2023, 1,062,874 options were

available for future grants under 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 31 st 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.

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

Additionally, the expiration period of grants under the Amended and Restated 2020 Plan may not be more than ten years.

As of March 31, 2024, 1,973,136 options were available for future grants under the Amended and Restated 2020 Plan.

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

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

The fair value of the award

is measured on the grant date.

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

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

In addition, the Company issues options

to directors which vest over a one-year period.

The Company also issues premium options to executive officers which have an exercise

price greater than the grant date fair value and has issued performance-based options which vest when target parameters are met or probable

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

Stock-based compensation expense related to

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

The fair value of

the award is measured on the grant date.

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

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

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.

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.

weighted average fair value of options granted during the three and nine months ended September 30, 2023 was $0.84 per share and $3.99

per share, respectively.

The weighted average fair value of options granted during the three and nine months ended September 30, 2022

was $0 per share and $32.81 per share, respectively.

compensation expense relating to options granted of $2.1 million, of which $1.4 million and $0.7 million, related to General and Administration

and Research and Development, respectively was recognized for the quarter ended September 30, 2023.

Stock-based compensation expense

relating to options granted of $2.7 million, of which $2.0 million and $0.7 million, related to General and Administration and Research

and Development, respectively was recognized for the quarter ended September 30, 2022.

compensation expense relating to options granted of $7.2 million, of which $5.0 million and $2.2 million, related to General and Administration

and Research and Development, respectively was recognized for the nine-month period ended September 30, 2023.

Stock-based compensation

expense relating to options granted of $8.1 million, of which $5.9 million and $2.2 million, related to General and Administration and

Research and Development, respectively was recognized for the nine-month period ended September 30, 2022.

of September 30, 2023, the Company had approximately $8.2 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 1.74 years.

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.

weighted average fair value of options granted for the three-month periods ended March 31, 2024 and 2023 was $0.33 and $4.13 per

share, respectively.

compensation expense relating to options granted of $1.7 million, of which $1.2 million and $0.5 million, related to General and

Administration and Research and Development, respectively was recognized for the quarter ended March 31, 2024.

compensation expense relating to options granted of $2.8 million, of which $2.0 million and $0.8 million, related to General and

Administration and Research and Development, respectively was recognized for the quarter ended March 31, 2023.

of March 31, 2024, we had approximately $6.9 million of total unrecognized compensation cost related to non-vested awards granted

under the Plans, which the Company expects to recognize over a weighted average period of 2.05 years.

Stock Purchase Plan

On May 6, 2022, our stockholders approved

the Tonix Pharmaceuticals Holdings Corp.

2022 Employee Stock Purchase Plan (the “2022 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 May 5, 2023.

May 6, 2022, our stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2022 Employee Stock Purchase Plan (the “2022

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 May 5, 2023.

2023 ESPP allows eligible employees to purchase up to an aggregate of 800,000 shares of the Company’s common stock.

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

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 period.

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 September 30, 2023, 800,000 shares were available for future sales under the 2023

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 March 31, 2024, 733,641 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.

For the three months ended September 30, 2023 and 2022, $34,000 and $46,000, respectively, was expensed.

For the nine months ended September

30, 2023 and 2022, $34,000 and $46,000, respectively were 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 $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 quarter ended March 31, 2024, and 2023, $27,000 and $0, respectively, was expensed.

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.

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 September 30, 2023, approximately $32,000 of employee payroll deductions have accumulated

and have been recorded in accrued expenses.

As of December 31, 2023,

approximately $44,000 of employee payroll deductions had accumulated and had 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 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.

and Development Contracts

have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately

million at September 30, 2023 for future work to be performed.

of September 30, 2023, future minimum lease payments are as follows (in thousands):

2027 and beyond

Included interest

$20.8 million at March 31, 2024 for future work to be performed.

of March 31, 2024, future minimum lease payments are as follows (in thousands):

Year Ending December 31,

Accounting Policies and Estimates

discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements,

discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,

which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these financial

statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses.

our estimates and judgments on an ongoing basis.

We base our estimates on historical experience and on assumptions that we believe to

be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and

liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates.

believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our

condensed consolidated financial statements.

The preparation of

these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities

and expenses.

We evaluate our estimates and judgments on an ongoing basis.

We base our estimates on historical experience and

on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments

about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ

from these estimates.

believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation

of our consolidated financial statements.

Combinations.

We apply the acquisition method of accounting for business combinations.

Under the acquisition method, the acquiring entity

recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values.

We use our best estimates

and assumptions to estimate the fair values of these tangible and intangible assets.

Any excess of the purchase price over amounts allocated

to the assets acquired is recorded as goodwill.

The acquired intangible assets are amortized using the straight-line method over the

estimated useful lives of the respective assets.

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.

Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same

period that the revenues are recognized.

Such variable consideration represents chargebacks, rebates, prompt pay and other sales discounts,

and product returns.

These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required

when estimating the impact of these revenue deductions on gross sales for a reporting period.

We began recognizing revenue following

the completion of the USL Acquisition, beginning in the period ended September 30, 2023, and required variable consideration estimates

are currently primarily based on the acquired products historical results.

Adjustments to these estimates to reflect actual results or

updated expectations will be assessed each period.

If any of our ratios, factors, assessments, experiences, or judgments are not indicative

or accurate estimates of our future experience, our results could be materially affected.

The potential of our estimates to vary differs

by program, product, type of customer and geographic location.

In addition, estimates associated with U.S.

Medicare and Medicaid governmental

rebate programs are at risk for material adjustment because of the extensive time delay.

Under the acquisition method, the acquiring

entity recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values.

our best estimates and assumptions to estimate the fair values of these tangible and intangible assets.

Any excess of the purchase

price over amounts allocated to the assets acquired is recorded as goodwill.

The acquired intangible assets are amortized using

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

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.

Our gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in

the same period that the revenues are recognized.

Such variable consideration represents chargebacks, rebates, prompt pay and

other sales discounts, and product returns.

These deductions represent estimates of the related obligations and, as such, knowledge

and judgment are required when estimating the impact of these revenue deductions on gross sales for a reporting period.

recognizing revenue following the completion of the USL Acquisition, beginning July 1, 2023, and required variable consideration

estimates are currently primarily based on the acquired products historical results.

Adjustments to these estimates to reflect

actual results or updated expectations will be assessed each period.

If any of our ratios, factors, assessments, experiences,

or judgments are not indicative or accurate estimates of our future experience, our results could be materially affected.

potential of our estimates to vary differs by program, product, type of customer and geographic location.

In addition, estimates

associated with U.S.

Medicare and Medicaid governmental rebate programs are at risk for material adjustment because of the extensive

and Development.

We outsource certain of our research and development efforts and expense the related costs as incurred, including the

cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials.

ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related to particular

research and development projects and had no alternative future uses.

We outsource certain of our research and development efforts and expense the related costs as incurred, including

the cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials.

The value ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related

to particular research and development projects and had no alternative future uses.

estimate our accrued expenses.

Our clinical trial accrual process is designed to account for expenses resulting from our obligations

under contracts with vendors, consultants and clinical research organizations and 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 to us under such contracts.

We account for

trial expenses according to the progress of the trial as measured by participant progression and the timing of various aspects of the

We determine accrual estimates that take into account discussions with applicable personnel and outside service providers as to

the progress or state of completion of trials, or the services completed.

During the course of a clinical trial, we adjust our clinical

expense recognition if actual results differ from our estimates.

We make estimates of our accrued expenses as of each balance sheet date

based on the facts and circumstances known to us at that time.

Our clinical trial accruals and prepaid assets are dependent upon the

timely and accurate reporting of contract research organizations and other third-party vendors.

under contracts with vendors, consultants and clinical research organizations and 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 to us under such contracts.

We account for trial expenses according to the progress of the trial as measured by participant progression and the timing of

various aspects of the trial.

We determine accrual estimates that take into account discussions with applicable personnel and

outside service providers as to the progress or state of completion of trials, or the services completed.

During the course of

a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates.

We make estimates of

our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time.

trial accruals and prepaid assets are dependent upon the timely and accurate reporting of contract research organizations and

other third-party vendors.

Compensation.

All stock-based payments to employees and to nonemployee directors for their services as directors consisted of grants

of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the consolidated statements

of operations as compensation expense over the relevant vesting period.

In addition, for awards that vest immediately and are nonforfeitable,

the measurement date is the date the award is issued.

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.

than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or

liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material variable

interest in an unconsolidated entity.

Adopted Accounting Pronouncements

August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives

and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an

Entity’s Own Equity , which simplifies accounting for convertible instruments by removing major separation models required under

current GAAP.

The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative

scope exception, and it also simplifies the diluted earnings per share calculation in certain areas.

We 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.

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

us for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, using a modified retrospective

All stock-based payments to employees and to nonemployee directors for their services as directors consisted of

grants of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the consolidated

statements of operations as compensation expense over the relevant vesting period.

In addition, for awards that vest immediately

and are nonforfeitable, the measurement date is the date the award is issued.

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 is included in interest expense on the consolidated statements of operations.

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.

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.

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.

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 a 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.

If 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.

than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements

or liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material

variable interest in an unconsolidated entity.

Accounting Pronouncements Not Yet Adopted

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

The new 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.

The 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.

We adopted ASU 2016-13 and related updates as of January 1, 2023.

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

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

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.

Early adoption is permitted.

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

our disclosures.

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.

3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis