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Item 8. Financial Statements and Supplementary Data

2025-03-18 compared with 2024-04-01 · 1057 added, 1178 removed, 671 unchanged (77% of the section changed)

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ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Tonix Pharmaceuticals Holding Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance

sheets of Tonix Pharmaceuticals Holding Corp.

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

The accompanying financial statements have been prepared

assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has continuing

losses and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern.

the Board of Directors and Stockholders of

Pharmaceuticals Holding Corp.

on the Financial Statements

have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp.

and Subsidiaries (the “Company”)

as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity,

and cash flows for each of the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company

as of December 31, 2024 and 2023, 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.

accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note

1 to the financial statements, the Company has continuing losses and negative cash flows from operating activities that raise substantial

doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note

The financial statements do not include any adjustments

that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits,

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

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

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

Accrual and prepaid balance for clinical trial expenses

As described in Note 2 to the consolidated financial

statements, at each balance sheet date the Company estimates its expenses resulting from its obligations under contracts with vendors,

clinical research organizations and under clinical site agreements in connection with conducting clinical trials.

The Company accounts

for trial expenses according to the timing of various aspects of the trial.

The Company’s accrual for clinical trial expenses of

approximately $3.0 million is included in accrued expenses and other current liabilities in the December 31, 2023 consolidated balance

The Company also recorded prepaid clinical trial expenses of approximately $4.6 million within prepaid expenses and other in the

audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error

or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits

provide a reasonable basis for our opinion.

Audit Matters

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) relate 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 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

matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

and prepaid balance for clinical trial expenses

described in Note 2 to the consolidated financial statements, at each balance sheet date the Company estimates its expenses resulting

from its obligations under contracts with vendors, clinical research organizations and under clinical site agreements in connection with

conducting clinical trials.

The Company accounts for trial expenses according to the timing of various aspects of the trial.

The Company’s

accrual for clinical trial expenses of approximately $1.8 million is included in accrued expenses and other current liabilities in the

December 31, 2024 consolidated balance sheet.

The amounts recorded for clinical trial expenses represent the Company’s estimates

of the unpaid and prepaid clinical trial expenses based on facts and circumstances known to the Company at that time, and are dependent

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

The estimation of clinical trial

expenses was also identified as a critical accounting estimate by management.

We identified the accrual for clinical trial expenses

as a critical audit matter due to the significant judgment and estimation required by management in determining progress or state of completion

of clinical trials or services completed.

This in turn led to a high degree of auditor subjectivity, and significant audit effort was

required in performing our procedures and evaluating audit evidence relating to estimates made by management.

Addressing the matter involved performing procedures

and evaluating audit evidence, in connection with forming our overall opinion on the consolidated financial statements.

We obtained an

understanding of Management’s process and evaluated the design of controls over developing its estimate of accrued and prepaid clinical

trial expenses, including the process of estimating the expenses incurred to date based on the status of the clinical trials.

Our procedures

also included, among others, reading agreements and contract amendments with vendors, consultants and clinical research organizations

and clinical site agreements in connection with conducting clinical trials, and evaluating the significant assumptions described above

and the methods used in developing the clinical trial estimates and re-calculating the amounts that were unpaid and prepaid at the balance

We confirmed contractual commitments and amounts completed, paid and unpaid directly with the third parties involved in performing

the clinical trial services on behalf of the Company.

We also made direct inquiries of financial and clinical Company personnel regarding

the contract amount including change orders, status and progress to completion of clinical trials, amounts paid to date under each contract,

and description of future commitments.

We also assessed the historical accuracy of management’s estimates by comparing current expenses

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

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

The Company also recorded prepaid clinical trial expenses of approximately $0.9 million

within prepaid expenses and other in the December 31, 2024 consolidated balance sheet.

The amounts recorded for clinical trial expenses

represent the Company’s estimates of the unpaid and prepaid clinical trial expenses based on facts and circumstances known to the

Company at that time and are dependent upon the timely and accurate reporting of contract research organizations and other third-party

The estimation of clinical trial expenses was also identified as a critical accounting estimate by management.

identified the accrual for clinical trial expenses as a critical audit matter due to the significant judgment and estimation required

by management in determining progress or state of completion of clinical trials or services completed.

This in turn led to a high degree

of auditor subjectivity, and significant audit effort was required in performing our procedures and evaluating audit evidence relating

to estimates made by management.

the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated

financial statements.

We obtained an understanding of Management’s process and evaluated the design of controls over developing

its estimate of accrued and prepaid clinical trial expenses, including the process of estimating the expenses incurred to date based

on the status of the clinical trials.

Our procedures also included, among others, reading agreements and contract amendments with vendors,

consultants and clinical research organizations and clinical site agreements in connection with conducting clinical trials, and evaluating

the significant assumptions described above and the methods used in developing the clinical trial estimates and re-calculating the amounts

that were unpaid and prepaid at the balance sheet date.

We confirmed a sample of contractual commitments for completeness of the contract

listing, as well as confirmation of work completed, paid and unpaid directly with the third parties involved in performing the clinical

trial services on behalf of the Company.

We also made direct inquiries of Company financial personnel regarding the contract amount including

change orders, status and progress to completion of clinical trials, amounts paid to date under each contract, and description of future

We also assessed the historical accuracy of management’s estimates by comparing work completed in the current period

to work completed in prior-period to identify unusual fluctuations, if any.

of long-lived assets

described in Note 2 to the consolidated financial statements, the Company evaluates long-lived assets for impairment, including property

and equipment, finite-lived intangible assets and operating lease right-of-use assets whenever events or circumstances indicate that

their net book value may not be recoverable.

The Company compared the projected undiscounted future cash flows associated with the related

asset or group of assets over their estimated useful lives against their respective carrying amount.

Impairment, if any, is based on

the excess of the carrying amount over the fair value of those assets, with the difference recorded as an impairment charge.

year-ended December 31, 2024, the Company recorded impairment charges related to long-lived assets of $48.8 million associated with the

decommissioning of the Advanced Development Center, and $9.2 million associated with Zembrace and Tosymra developed technology intangible

assets due to a decline in revenues.

identified the impairment of long-lived assets as a critical audit matter due to the significant judgment and estimation required by

management in estimating the undiscounted cash flows and related fair value estimates of each impaired asset group.

This in turn led

to a high degree of auditor subjectivity, and significant audit effort was required in performing our procedures and evaluating audit

evidence relating to estimates made by management.

Addressing the matter involved performing procedures

and evaluating audit evidence, in connection with forming our overall opinion on the consolidated financial statements.

We obtained an

understanding of Management’s process and evaluated the design of controls over developing its estimate of 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

EISNERAMPER LLP

Iselin, New Jersey

April 1, 2024

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 the identification

of events or changes in circumstances that indicate the carrying amount of an asset or asset group may not be recoverable, as well as

management’s methodology in determining the fair value estimate when triggering events are identified.

procedures related to the Advanced Development Center also included, among others, (i) evaluation of whether management appropriately

identified events or changes in circumstances that indicated that the carrying amount of certain asset groups may not be recoverable;

(ii) evaluation of management’s determination of asset groups at the lowest level of identifiable cash flows;

(iii) vouching a

selection of invoices to validate acquisition costs, along with physical observation of the underlying land, building, and selected machinery

and equipment near the impairment date;

and (iv) testing managements fair value estimates.

Testing over the fair value estimates involved

the assistance of auditor specialists, which included determining the reasonableness of the valuation methodology applied and assumptions

used by Management.

procedures related to developed technology intangible assets also included, among others, (i) evaluation of whether management appropriately

identified events or changes in circumstances that indicated that the carrying amount of certain asset groups may not be recoverable;

and (ii) testing managements recoverability test and fair value estimates.

Testing over the fair value estimates involved the assistance

of auditor specialists, which included determining the reasonableness of the valuation methodology applied and assumptions used by Management.

As part of our evaluation, we also considered whether such assumptions were consistent with evidence obtained in other areas of the audit.

have served as the Company’s auditor since 2010.

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2023 AND 2022

(In Thousands, Except Par Value and Share

(In Thousands, Except Par Value and Share Amounts)

Current assets:

Cash and cash equivalents

Accounts receivable, net

Inventory, net

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Preferred stock, $ 0.001 par value;

5,000,000 shares authorized

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, 2023 and December 31, 2022;

issued and outstanding - none

5,000,000 shares authorized, 0 shares designated as of both December 31, 2024 and 2023;

0 shares issued and outstanding - as of both December 31, 2024 and 2023

Common stock, $ 0.001 par value;

1,000,000,000 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

4,385,929 and 20,926 shares issued and outstanding as of December 31, 2024 and 2023, respectively and 21 shares to be issued as of December 31, 2023

Additional paid in capital

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Total liabilities and stockholders’ equity

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 OPERATIONS

(In Thousands, Except Share and Per Share

(In Thousands, Except Share and Per

Share Amounts)

Year ended December 31,

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Research and development

General and administrative

Selling, general and administrative

Asset impairment charges

Total Operating Expenses

Operating loss

Other income, net

Preferred stock deemed dividend

Gain on change in fair value of warrant liabilities

Other (expense) income, net

Net loss available to common stockholders

$ ( 130,036 )

$ ( 116,658 )

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

$ ( 14,720.25 )

Weighted average common shares outstanding, basic and diluted

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Year ended December 31,

$ ( 130,036 )

$ ( 116,658 )

Other comprehensive loss:

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Comprehensive loss

$ ( 130,059 )

$ ( 116,723 )

See the accompanying notes to the consolidated

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Balance, December 31, 2023

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

Issuance of common stock under 2022 Purchase agreement

$ ( 600,658 )

Issuance of common stock upon exercise of prefunded warrants

Issuance of common stock under At-the-market offering, net of transactional expenses of $ 4,977

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

Issuance of common stock, net of transactional expenses of $ 2,261

Fair value of warrants reclassified from liabilities to equity

Fair value of warrants classified from equity to liabilities

Employee stock purchase plan

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Balance, December 31, 2024

$ ( 730,694 )

See the accompanying notes to the consolidated

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Balance, December 31, 2022

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 under 2022 Purchase agreement

$ ( 470,038 )

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

Issuance of common stock 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

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Balance, December 31, 2023

See the accompanying notes to the

consolidated financial statements

$ ( 600,658 )

See the accompanying notes to the consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

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Depreciation and amortization

Asset impairment charges

Stock-based compensation

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Offering costs allocated to warrant liabilities

Inventory write-off

Amortization of debt discounts

Gain on sale of property and equipment

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other

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CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment

Purchase of business

Disposal of property and equipment

Purchase of a business

Purchase of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Deferred payment related to purchase of business

Proceeds from ESPP

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

Repayments of term loan

Redemption of convertible preferred stock

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Effect of currency rate change on cash

Net decrease in cash, cash equivalents and restricted cash

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

Cash, cash equivalents and restricted cash beginning of the period

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Supplemental disclosures of cash flow information:

Interest paid

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

Net ATM proceeds received after year-end

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

New operating leases and lease amendments

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NOTE 1 – BUSINESS

Tonix Pharmaceuticals Holding

Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc.

(“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”).

All intercompany balances and transactions

have been eliminated in consolidation.

Tonix Pharmaceuticals

Holding Corp.

(“Tonix” or the “Company”), through its wholly owned subsidiary Tonix Pharmaceuticals, Inc.

(“Tonix Sub”), is a fully integrated biopharmaceutical company focused on transforming therapies for pain management

and vaccines for public health challenges.

Tonix’s priority is to advance TNX-102 SL, a product candidate for

the management of fibromyalgia, for which an NDA was submitted based on two statistically significant Phase 3 studies for the management

of fibromyalgia and for which a PDUFA (Prescription Drug User Fee act) goal date of August 15, 2025 has been assigned for a decision on

marketing authorization.

The FDA has also granted Fast Track designation to TNX-102 SL for the management of fibromyalgia.

is also being developed to treat acute stress reaction and acute stress disorder under a Physician-Initiated IND at the University of

North Carolina in the OASIS study funded by the U.S.

Department of Defense (DoD).

Tonix’s CNS portfolio includes TNX-1300 (cocaine

esterase), a biologic in Phase 2 development designed to treat cocaine intoxication that has FDA Breakthrough Therapy designation, and

its development is supported by a grant from the National Institute on Drug Abuse.

Tonix’s immunology development portfolio consists

of biologics to address organ transplant rejection, autoimmunity and cancer, including TNX-1500, which is an Fc-modified humanized monoclonal

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

Tonix also has product candidates in development in infectious disease, including a vaccine for mpox, TNX-801.

Tonix recently

announced a contract with the U.S.

DoD’s Defense Threat Reduction Agency (DTRA) for up to $ 34 million over five years to develop

TNX-4200, small molecule broad-spectrum antiviral agents targeting CD45 for the prevention or treatment of infections to improve the medical

readiness of military personnel in biological threat environments.

Tonix owns and operates a state-of-the art infectious disease research

facility in Frederick, Md.

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.

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, the “Company” or “Tonix”).

All intercompany balances and

transactions have been eliminated in consolidation.

Going Concern

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At December 31, 2024, the Company had an accumulated deficit of approximately $ 730.7 million.

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

The Company held unrestricted cash and cash equivalents of approximately $ 98.8 million as of December 31, 2024.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

that its cash resources at December 31, 2024 and the net proceeds of $ 46.3

million that it raised from equity offerings in the first quarter of 2025 (See Note 13), will not meet its planned operating and

capital expenditure requirements into the first quarter of 2026, but not beyond.

These factors raise

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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

Without additional funds, it may be forced to delay, scale back or eliminate some or all of its research

and development activities or other operations, and potentially delay product development in an effort to maintain 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.

If any of these events occurs, the Company’s ability to achieve development and commercialization

goals will 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.

On June 10, 2024, 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 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 common

and preferred stock were not adjusted because of the reverse stock split.

On February 5, 2025,

the Company effected a 1-for-100 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 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 common

and preferred stock were not adjusted because of the reverse stock split.

Risks and uncertainties

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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.

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.

TONIX PHARMACEUTICALS HOLDING CORP.

1 unchanged sentence

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.

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, impairments, 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

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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,

The Company adopted

Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280) – Improvements to Reportable Segment

Disclosures, as of January 1, 2024.

Operating segments

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

decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company considers its chief executive officer to be the Company’s CODM.

The CODM manages its operations and allocates

resources based on the Company’s consolidated results and therefore operates as one segment.

Segment revenue, profit

or loss, significant segment expenses and other segment items - The accounting policies of the Company’s single operating

and reportable segment are the same as those described in the summary of significant accounting policies.

The Company’s method

for measuring segment profitability includes net income (loss), which the CODM uses to assess performance and make decisions for resource

allocation, consistent with the measurement principals for net income (loss) as reported on the Company’s consolidated statement

of operations.

The significant expenses regularly reviewed by the CODM are consistent with those reported on the Company’s

consolidated statement of operations, and expenses are not regularly reviewed on a more disaggregated basis for purposes of assessing

segment performance and deciding how to allocate resources.

The measure of segment assets is reported.

The Company has two products that each accounted for $8.5 million and $1.6

million, respectively, representing 100 % of total revenues during the year ended December 31, 2024 and 2023.

As of December 31,

2024, accounts receivable from four customers accounted for 30 %, 26 %, 25 %, and 9 % of accounts receivable.

As 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, 2024, revenues from five customers accounted for 24 %, 23 %, 22 %, 16 % and 10 % of net product revenues, respectively.

For the year ended December 31, 2023, revenues from four customers accounted for 25 %, 21 %, 18 % and 14 % 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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 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, 2024 and 2023, cash equivalents, which consisted of money market funds, amounted

to $ 24,000 and $ 23,000 , respectively.

Restricted cash, which is included in Other non-current assets on the consolidated balance sheet, at both December 31, 2024 and 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 16) and restricted cash held by vendors in

escrow accounts for patient support services.

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:

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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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.

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

discounts, chargebacks and customer rebates.

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

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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 .

31, 2024, the Company did not have an allowance for credit losses, as the Company’s exposure to credit losses is de minimis.

An allowance for credit losses 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

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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.

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

We monitor the financial

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Acquired inventory was

valued at estimated selling price less a reasonable margin.

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

During the year ended December 31, 2024, the Company recorded write-downs related to Tosymra and Zembrace finished

goods inventory of approximately $ 0.3 million and $ 1.2 million, respectively, based on an assessment of inventory on hand and projected

sales prior to the respective expiration dates.

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 did not

have inventory on hand prior to the acquisition of Zembrace and Tosymra on June 30, 2023.

Property and equipment

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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.

Depreciation and amortization is calculated using the straight-line method over

the asset’s estimated useful life, which ranges from 20 to 40 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 and amortization on assets begin when the asset is placed in service.

Depreciation and amortization expense for the years ended December 31, 2024, and 2023 was $ 2.9 million and $ 3.8 million, respectively.

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

Intangible assets, net

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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).

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

The acquired intangible

1 unchanged sentence

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

for both the years ended December 31, 2024, and 2023, was $ 0.5 million.

The Company recorded a full impairment of its developed

technology assets during the second quarter of 2024, discussed further below.

Impairment testing of long-lived assets

The Company evaluates

long-lived assets for impairment, including property and equipment, finite-lived intangibles assets and operating lease right-to-use

assets whenever events or changes in circumstances indicate that their net book value may not be recoverable.

When such factors

and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or

group of assets over their estimated useful lives against their respective carrying amount.

Impairment, if any, is based on the

excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of

those assets and is recorded in the period in which the determination is made.

During the second quarter

of 2024, the Company identified certain triggering events related to and the decommissioning of the ADC.

The Company determined

that the carrying value of the ADC was not recoverable and that the carrying value exceeded its fair value.

As such, the Company

recorded a non-cash impairment charge of $ 48.8 million, which is reflected in asset impairment charges in the consolidated statements

of operations for the year ended December 31, 2024.

Additionally, due to

a sustained decline in revenues and continued delays in building out the sales team for its commercialized products, the Company

also tested its commercialized products asset group for recoverability during the second quarter of 2024.

The Company determined

that the carrying value was not recoverable and therefore estimated the fair value of the asset group using a discounted cash flow

The Company recorded a non-cash impairment charge for the amount of $ 9.2 million, representing the excess carrying value

over the fair value, consisting of $ 6.2 million and $ 3 .0 million for the Zembrace and Tosymra developed technology intangible assets,

respectively, which is reflected in asset impairment charges in the consolidated statements of operations for the year ended December

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill represents

2 unchanged sentences

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 previously recognized goodwill in connection with the USL Acquisition

consummated on June 30, 2023 (See Note 5).

The Company completed the required annual impairment test for goodwill during the second

quarter of 2024, which resulted in full non-cash impairment of the Company’s $ 965,000 of goodwill, which is reflected in

asset impairment charges in the consolidated statements of operations for the year ended December 31, 2024.

The Company determines

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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

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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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Many of the Company’s

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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,

recipients, and primarily relate to Medicaid and managed care rebates, pharmacy rebates, Tri-Care rebates and discounts,

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

16 unchanged sentences

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Prompt-Pay and other

24 unchanged sentences

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 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.

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.

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

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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.

included in the grant application approved by the government authority and, in certain arrangements.

GAAP does not have specific

accounting standards covering government grants to business entities.

The Company applies International Accounting Standards 20

(“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance by analogy when accounting for

government grants.

Under IAS 20, government grants are initially recognized when there is reasonable assurance the conditions of

the grant will be met and the grant will be received.

After initial recognition, government grants received are recognized in earnings

in the same period the underlying costs for which the grant is intended to compensate are incurred.

The Company classifies government

grants received under these arrangements as either a reduction to the related research and development expense or as grant income

in the consolidated statements of operations, depending on the fee structure of the arrangement.

The Company also applies

the disclosure requirements of ASC 832, Government Assistance.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2022, the

Company 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.

the year ended December 31, 2024, we received $ 1.4 million in funding as a reduction of related research and development

Included in prepaid expenses and other current assets is an additional $ 0.2 million which was received in February 2025

and resulted in a further reduction of research and development expense during the year ended December 31, 2024.

During the year

ended December 31, 2023, we received $ 2.7 million in funding as a reduction of related research and development expense.

In June 2024, the Company

was awarded a prototype Other Transaction Agreement from the Defense Threat Reduction Agency (“DTRA”), an agency within

Department of Defense, to fund the Company’s TNX-4200 program for the development of a small molecule broad-spectrum

antiviral for the prevention or treatment of viral infections to improve the medical readiness of military personnel in biological

threat environments.

The DTRA grant provides for payments totaling up to $ 34.1 million over five years, which is subject to adjustment

based on costs, scope, budget, and other factors as the program advances.

Funding under the DTRA grant is earned and recognized

under a cost-plus-fixed-fee arrangement in which the Company is reimbursed for all direct costs incurred plus allowable indirect

costs and a fixed fee.

During the year ended December 31, 2024, $ 2.6 million was recognized in grant income related to the

As of December 31, 2024, $ 0.6 million of grant income, included above, was earned but not yet received and is presented

in prepaid expenses and other current assets.

Stock-based Compensation .

36 unchanged sentences

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments and Warrant Liabilities

8 unchanged sentences

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.

certain equity-linked instruments may be classified as derivative liabilities due to the variable exercise price of the shares

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

In such case, the Company has adopted a sequencing approach

1 unchanged sentence

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.

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.

In the event of identical issuance dates, shares are then allocated to equity beginning with instruments

with the latest maturity date first.

The classification

of derivative instruments is reassessed at each reporting date.

If the classification changes as a result of events during a reporting

period, the instrument is reclassified as of the date of the event that caused the reclassification.

There is no limit on the number

of times a contract may be reclassified.

Per Share Data

2 unchanged sentences

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.

Prefunded warrants are assumed exercised on date of issuance and are included in the basic earnings per share (“EPS”)

All warrants (See Note

15) issued participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board

of Directors, on the Company’s common stock.

For purposes of computing EPS, these warrants are considered to participate

with common stock in earnings of the Company.

Therefore, the Company calculates basic and diluted EPS using the two-class method.

Under the two-class method, net income for the period is allocated between common stockholders and participating securities according

to dividends declared and participation rights in undistributed earnings.

No income was allocated to the warrants for the year

ended December 31, 2024, and 2023, as results of operations were a loss for the periods.

Potentially dilutive

2 unchanged sentences

Options to purchase common stock

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

Recent Accounting Pronouncements Not

Adopted and Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.

Reporting (Topic 280), Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure

requirements, primarily through enhanced disclosures about significant segment expenses.

Effective January 1, 2024, the Company

adopted the new standard on a retrospective basis for annual periods, and interim periods beginning for the first quarter of 2025.

The Company does not believe the impact of the new guidance and related codification improvements had a material impact to its

financial position, results of operations and cash flows.

Recently Issued Accounting

Pronouncements

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.

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

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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,

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

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

3 unchanged sentences

statements and disclosures.

In November 2024, the

FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, to

improve transparency in financial reporting by requiring entities to present more detailed information about the nature of expenses

included within the Income Statement.

The guidance will first be effective for annual reporting periods beginning after December

15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is in the process

of assessing the impact of ASU 2024-03 on our disclosures.

NOTE 3 – INVENTORY

The components of inventory

consisted of the following as of December 31, 2023:

consisted of the following as of December 31, 2024 and 2023:

(in thousands)

2 unchanged sentences

Finished Goods

Inventory gross

Inventory reserves

Total Inventory

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PROPERTY AND EQUIPMENT,

7 unchanged sentences

Leasehold improvements

Construction in progress

Property and equipment gross

1 unchanged sentence

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.

During the second

quarter of 2024, primarily as a result of the Company’s decision to decommission its ADC facility in Dartmouth, Massachusetts,

the Company recognized a non-cash impairment charge of $ 48.8 million, which is reflected in asset impairment charges in the consolidated

statements of operations for the year ended December 31, 2024.

The 45,000 square foot facility was purchased on September 28, 2020,

for $ 4 .0 million and incurred approximately $ 61.6 million to the build-out of the facility.

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

Balance at December 31, 2023

Acquired during the period (see Note 12)

Impairment of goodwill

Balance at December 31, 2024

The Company completed

its annual impairment test for goodwill during the second quarter of 2024, which resulted in full impairment of the Company’s

$ 965,000 of goodwill, which is reflected in asset impairment charges in the consolidated statements of operations for the year

ended December 31, 2024.

The following table

3 unchanged sentences

Developed technology

Impairment charge

Accumulated amortization

2 unchanged sentences

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2024 and 2023, the Company recorded

amortization of $ 476,000 and $ 477,000 , respectively.

As a result of certain

triggering events identified impacting the Company’s commercialized products asset group during the second quarter of 2024,

the Company tested the asset group for impairment as of June 30, 2024, resulting in a full impairment of its Zembrace and Tosymra

developed technology intangible assets, of $ 6.2 million and $ 3 .0 million, respectively, which is reflected in asset impairment

charges in the consolidated statements of operations for the year ended December 31, 2024.

NOTE 6 – FAIR VALUE MEASUREMENTS

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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.

2024, and 2023, the Company used Level 1 quoted prices in active markets to value cash equivalents which were de minimis for both

periods presented.

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2024.

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

As of December

31, 2023, Level 3 liabilities included a portion of the Series D Warrants and all Series C Warrants issued in December 2023, which

did not meet the criteria for equity classification due to insufficient authorized shares to settle the instruments and were therefore

accounted for as liabilities at fair value from the issuance date to January 25, 2024, the date the Company received stockholder

approval to increase the number of authorized shares.

Additionally, during

the year ended December 31, 2024, Level 3 liabilities included a portion of the Company’s outstanding August 2023 Warrants,

Series A Warrants, Series B Warrants, Series C Warrants, and Series D Warrants (collectively, the “Existing Warrants”),

as a result of certain Warrant Amendments executed on April 1, 2024, which provided for potential adjustments to the exercise prices

of the Existing Warrants that were contingent on stockholder approval.

As such, the Existing Warrants classified as liabilities

from April 1, 2024, through May 22, 2024, the date the Company received stockholder approval to fix the exercise prices at $ 1,056.00

The Company uses the

Black-Scholes option pricing model to estimate the fair value of warrant liabilities as of the respective issuance dates or reclassification

dates, as applicable, using significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

For periods prior to the initial exercise date of the warrants, an additional discount for lack of marketability (“DLOM”)

For the Existing Warrants, the Black-Scholes option pricing model was probability weighted for different exercise

price scenarios, as applicable.

The following table

summarizes the range of significant assumptions used in determining the fair value of liability-classified warrants for the years

ended December 31, 2024, and 2023:

December 31, 2024

1 unchanged sentence

Common stock price

608.00 - 988.80

Risk-free rate

4.01 % - 5.37 %

3.84 % - 4.23 %

Expected term (in years)

Expected volatility

Dividend yield

105.00 % - 120.00 %

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of

the beginning and ending balances for the liability-classified warrants measured at fair value on a recurring basis using significant

unobservable inputs (Level 3) is as follows for the year ended December 31, 2024:

Warrant liabilities

Balance at December 31, 2023

Fair value - mark to market adjustment

Warrants reclassified from liabilities to equity

Warrants reclassified from equity to liabilities

Fair value - mark to market adjustment

Warrants reclassified from liabilities to equity

Balance at December 31, 2024

A reconciliation of

the beginning and ending balances for the liability-classified warrants measured at fair value on a recurring basis using significant

unobservable inputs (Level 3) is as follows for the year ended December 31, 2023:

Balance at December 31, 2022

Warrant liabilities issued

Fair value - mark to market adjustment

Balance at December 31, 2023

Changes in the fair

value of the liability-classified warrants are recognized as a separate component of income and expense in the consolidated statement

of operations.

NOTE 7 – OTHER BALANCE SHEET INFORMATION

1 unchanged sentence

captions in the consolidated balance sheets consist of:

Prepaid expenses and other current assets:

(in thousands)

Prepaid expenses and other:

Contract-related

Government grants

At-the-market receivable

Non-trade receivables

Debt interest and fees

3 unchanged sentences

Compensation and compensation-related

Product returns

Construction in progress

Gross-to-net deductions

Professional fees and other

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – DEBT FINANCING

Long-term debt consists of the following:

(in thousands)

December 31, 2024

December 31, 2023

current portion

2 unchanged sentences

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”),

On 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 (collectively, the “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”)

10 unchanged sentences

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.

The remaining

deposit as of December 31, 2024 totals $ 0.2 million, which 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

8, 2024 and continuing monthly through the Maturity Date, the outstanding principal is 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.

16 unchanged sentences

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

the first quarter of 2025, the Company paid $ 9.6 million as a result of a pay-off of the above-mentioned loan.

The pay-off amount

paid by the Company in connection with the termination of the Loan Agreement was pursuant to a pay-off letter and includes a prepayment

fee of $ 1 .0 million in accordance with the terms and provisions of the Loan Agreement.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 June 10, 2024, the

Company effected a 1-for-32 reverse stock split of its issued and outstanding shares of common stock, whereby 95,543,805 outstanding

shares of the Company’s common stock were exchanged for 2,985,924 shares of the Company’s common stock.

In connection

with the reverse stock split, the Company issued an additional 245,205 shares of the Company’s common stock due to fractional

These numbers represent the split at the time and are not split adjusted for further split adjustments.

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.

As a result of the reverse-stock-split, on June 26, 2024, the Company’s

stock regained compliance with the minimum bid price requirement of $ 1.00 per share for continued listing on the NASDAQ Capital

Market, as set forth in NASDAQ Listing Rule 5550(a)(2).

On January 25, 2024,

4 unchanged sentences

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

Preferred stock issuance costs

Accretion of carrying value to redemption value

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 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

Preferred stock issuance costs

Accretion of carrying value to redemption value

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.

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On February 5, 2025,

the Company effected a 1-for-100 reverse stock split of its issued and outstanding shares of common stock, whereby 559,044,486

outstanding shares of the Company’s common stock were exchanged for 5,590,667 shares of the Company’s common stock.

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.

As a result of the reverse-stock-split, on February 20, 2025, the Company’s

stock regained compliance with the minimum bid price requirement of $ 1.00 per share for continued listing on the NASDAQ Capital

Market, as set forth in NASDAQ Listing Rule 5550(a)(2).

On February 20,

2025, the Company received a letter from The NASDAQ Stock Market LLC stating that 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, the Company’s stock had regained compliance

with the minimum bid price requirement of $ 1.00 per share for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ

Listing Rule 5550(a)(2), and that the matter is now closed.

NOTE 10 – REVENUES

Disaggregation of Net Revenues

The Company’s net product revenues

are summarized below:

The Company’s

net product revenues are summarized below:

Zembrace Symtouch

Total product revenues

All sales are generated

in the United States.

The Company recognized revenue

beginning July 1, 2023, as a result of the acquisition of two marketed products.

Gross-to-Net Sales Accruals

1 unchanged sentence

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.

Our provision for gross-to-net

allowances was $ 4.5 million at December 31, 2024, of which $ 0.8 million was recorded as a reduction to accounts receivable and

$ 3.7 million was recorded as a component of accrued expenses.

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – 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.

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 provided 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.

The Company has amended the transitional services agreement with

Upsher Smith so that Upsher Smith can continue to provide for the management of certain government rebates.

Upsher Smith will be

reimbursed by the Company at cost for any rebates they pay on the Company’s behalf.

The Company has assumed

certain obligations of Upsher Smith, including the payment of quarterly royalty payments on annual net sales from the Business

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;

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.

16 % for net sales of greater than $ 100 million.

Such royalty payments are payable until July

Upon the entry of a generic version of the relevant product, the applicable royalty rates shall be reduced by 90 % percent

with respect to Zembrace, and by 66.7 % percent for Tosymra.

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

royalty 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 royalty payment rates and annual net sales tiers described above will apply.

In 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):

In April 2024, the Company paid the additional deferred payment of $ 3 .0 million in cash.

The following table

summarizes the components of the purchase consideration (in thousands):

Purchase consideration

8 unchanged sentences

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 tangible 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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

The following table

1 unchanged sentence

Company’s consolidated balance sheets (in thousands):

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Preliminary purchase price allocation

Purchase price allocation

Prepaid expenses and other

3 unchanged sentences

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.

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

effort and holding costs.

Intangible assets eligible

19 unchanged sentences

differ from these estimates and assumptions.

Due to a sustained

decline in revenues and continued delays in building out the sales team for its commercialized products, the Company also tested

its commercialized products asset group for recoverability during the second quarter of 2024.

The Company determined that the carrying

value was not recoverable and therefore estimated the fair value of the asset group using a discounted cash flow analysis.

Company recorded a non-cash impairment charge in the amount of $ 9.2 million, representing the excess carrying value over the fair

value, consisting of $ 6.2 million and $ 3 .0 million for the Zembrace and Tosymra developed technology intangible assets, respectively,

which is reflected in asset impairment charges in the consolidated statements of operations for the year ended December 31, 2024.

As the carrying value of these intangibles is $ 0 , there were no further impairment considerations during the year ended December

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

The following unaudited

pro forma consolidated financial information reflects the results of operations of the Company for the year ended December 31, 2023 as if the USL Acquisition had occurred as of January 1, 2023, and gives effect to transactions that are directly

attributable to the acquisition, including additional amortization expense related to the fair value of intangible assets acquired

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

On an unaudited pro forma

basis, consolidated Net Product Sales and Net Loss for the year ended December 31, 2023, would have been $ 15.4 million and $ 119.9

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

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 business 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 for the year ended December 31, 2024, is $ 10.1 million and $ 17.4 million, respectively.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

As described above, in connection with the USL Acquisition, the Company

and Upsher Smith entered into a Transition Services Agreement with Upsher Smith 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.

Upsher Smith collected 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

On April 1, 2024, the Company amended the transitional services agreement with Upsher Smith so that Upsher Smith will only provide

for the management of certain government rebates.

Upsher Smith will be reimbursed by the Company at cost for any rebates they pay on the

Company’s behalf.

NOTE 12 – ASSET PURCHASE AGREEMENT

On February 2, 2023,

9 unchanged sentences

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.

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

Company entered into an exclusive License Agreement with the University of Alberta focused on identifying and testing broad-spectrum

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

As consideration for entering into the License

Agreement, Tonix paid a low-five digit license fee to University of Alberta.

The License Agreement also provides for single-digit

royalties and contingent milestone payments.

As of December 31, 2023, other than the upfront fee, no milestone payments have been

accrued or paid in relation to this agreement.

NOTE 16 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY

On February 13, 2023,

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 13 – SALE OF COMMON STOCK

December 2023 Financing

2024 At-the-Market

On July 30, 2024,

the Company entered into a Sales Agreement ( the “2024 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 $ 250 .0

million in ATM sales.

AGP will act as sales agent and will be paid a 3 % commission on each sale under the 2024 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

During the year ended December 31, 2024, the Company sold approximately 4.2 million shares of common stock under the Sales

Agreement, as defined below, for net proceeds of approximately $ 128.4 million.

Subsequent to December 31, 2024, the Company has

sold 2.3 million shares of common stock under the Sales Agreement, for net proceeds of approximately $ 46.3 million.

July 2024 Financing

On July 9, 2024, the

Company entered into a securities purchase agreement with certain institutional and retail investors, pursuant to which the Company

sold 33,936 shares of common stock and pre-funded warrants to purchase up to 37,032 shares of common stock.

The offering price

per share of common stock was $ 57.00 , and the offering price per share of pre-funded warrant was $ 56.99 .

The offering closed

on July 10, 2024.

The 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 $ 3.5 million, after deducting the underwriting discount and other

offering expenses.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

2024 Financings

June 12, 2024, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company

sold 11,995 shares of common stock and pre-funded warrants to purchase up to 25,682 shares of common stock.

The offering price

per share of common stock was $ 106.50 , and the offering price per share of pre-funded warrant was $ 106.40 .

offering closed on June 13, 2024.

The Company incurred offering expenses of approximately $ 0.6 million, including placement agent

fees of approximately $ 0.3 million.

The Company received net proceeds of approximately $ 3.4 million, after deducting the underwriting

discount and other offering expenses.

June 27, 2024, the Company entered into a securities purchase agreement with certain institutional and retail investors, pursuant

to which the Company sold 28,339 shares of common stock and pre-funded warrants to purchase up to 42,282 shares of common stock.

The offering price per share of common stock was $ 57.00 , and the offering price per share of pre-funded warrant was $ 56.99 .

offering closed on June 28, 2024.

The Company incurred offering expenses of approximately $ 0.6 million, including placement agent

fees of approximately $ 0.3 million.

The Company received net proceeds of approximately $ 3.4 million, after deducting the underwriting

discount and other offering expenses.

2024 Financing

March 28, 2024, the Company entered into an agreement to sell 3,365 shares of common stock, pre-funded warrants to purchase up

to 1,219 shares of common stock, and accompanying Series E warrants to purchase up to 4,584 shares of common stock with an exercise

price of $ 1,056.00 per share and expiring five and a half years from date of issuance in a public offering, which closed on April

The offering price per share of common stock was $ 960.00 , and the offering price per share of pre-funded warrants was

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 $ 3.9 million, after deducting the underwriting discount and other offering

Additionally,

with the closing of the financing on April 1, 2024, the Company entered into warrant amendments (collectively, the “Warrant

Amendments”) with certain holders of its common warrants (referred to herein as the “Existing Warrants”).

Company agreed to amend the exercise price of each Existing Warrant to $ 1,056.00 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, if stockholder

approval is not obtained by October 1, 2024, the Company 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 Company’s common stock on October 1, 2024, if and

only if the Minimum Price is below the then current exercise price.

Upon stockholder approval, the termination date for the warrants

issued August 2023 (the “August Warrants”) to purchase up to an aggregate of 2,172 shares was amended to April 1,

the termination date for Series A Warrants to purchase up to an aggregate of approximately 2,782 shares is April 1, 2029 ;

the termination date for Series B Warrants to purchase up to an aggregate of approximately 2,782 shares is April 1, 2025 ;

termination date for Series C Warrants to purchase up to an aggregate of approximately 10,884 shares is the earlier of (i) April

1, 2026 and (ii) 10 trading days following notice by the Company to the Series C Warrant holders 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 10,884 shares is April

The other terms of the Existing Warrants remained unchanged.

Company evaluated the Warrant Amendments as of April 1, 2024, and determined that the potential adjustment to the exercise price

that is contingent on stockholder approval precluded the Existing Warrants from being indexed to the Company’s own stock,

and as a result, did not meet the criteria for equity classification under ASC 815-40.

The Company accounted for the incremental

fair value of the Warrant Amendments of $ 3 .0 million as a direct and incremental cost of the March 2024 financing as an offset

to the proceeds received.

As all of the Existing Warrants were equity-classified prior to the Warrant Amendments, the net impact

to the consolidated statement of stockholders’ equity was zero.

The Company then reclassified the Existing Warrants

from equity to liabilities at post-modification fair value on April 1, 2024.

On May 22, 2024, the date the Company’s stockholders

approved the proposal to fix the exercise prices at $ 1,056.00 per share, the Existing Warrants were adjusted to fair value and

reclassified back to equity.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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”).

institutional investors, pursuant to which the Company sold and issued (i) 7,920 shares of the Company’s common stock, (ii)

pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 8,973 shares of common stock and (iii) Series C

warrants to purchase up to 25,338 shares of common stock (the “Series C Warrants”), and (iv) Series D warrants to

purchase up to 25,338 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

The offering price

per share of common stock and accompanying Common Warrants was $ 1,776.00 , and the offering price per Pre-Funded Warrant and accompanying

Common Warrants was $ 1,775.68 .

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, 2,034 Pre-Funded Warrants

were immediately exercised into shares of common stock for nominal proceeds.

Pre-Funded Warrants have an exercise price of $ 0.32 per share, were 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 $ 1,776.00 per share, and

were 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 initially expired 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.

Series D Warrants have an exercise price of $ 2,720.00 per share and were 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.

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

In the event of identical issuance dates, shares are then allocated beginning with instruments with the latest maturity date

Pursuant to this sequencing approach, the Company determined that the authorized shares were sufficient to settle all

remaining Pre-Funded Warrants and 15,917 Series

D Warrants and were therefore classified in equity.

The remaining 9,422 Series

D Warrants and the Series C Warrants associated with the deficit shares were initially classified as liabilities at fair value and

presented within non-current liabilities on the consolidated balance sheet as of December 31, 2023.

$ 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

Series D Warrants at their respective fair values, and the residual proceeds were allocated between 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 were allocated

between the equity and liability-classified instruments on a relative fair value basis, resulting in issuance costs of $ 1.4 million

recognized as a discount to the equity-classified instruments, and $ 0.9 million allocated to the liability-classified instruments

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

January 25, 2024, the date 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 , the liability-classified

Series D Warrants and the Series C Warrants were adjusted to fair value and reclassified to equity.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

2023 Financing

September 28, 2023, the Company sold 1,266 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 .

pre-funded warrants to purchase up to 1,549 shares of common

stock, and accompanying Series A warrants to purchase up to 2,813 shares of common stock with an exercise price of $ 1,600.00 per

share and expiring five years from date of issuance, and Series B warrants to purchase up to 2,813 shares of common stock with

an exercise price of $ 1,600.00 per share and expiring one year from date of issuance in a public offering, which closed on October

The offering price per share of common stock and accompanying warrants was $ 1,600.00 , and the offering price per share

of pre-funded warrant and accompanying warrants was $ 1,599.68 .

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

2023 Financing

July 27, 2023, the Company sold 791 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 .

pre-funded warrants to purchase up to 1,399 shares of common stock

and accompanying common warrants to purchase up to 2,188 shares of common stock with an exercise price of $ 3,200.00 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 $ 3,200.00 , and the offering price per share of pre-funded warrant and accompanying common warrant was $ 3,199.68 .

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

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 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

2020 At-the-Market Offerings

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

On 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.

During the year ended December

31, 2023, the Company sold approximately 322 shares of common stock under the Sales Agreement, for net proceeds of approximately $ 3 .0

September 2024, the Board of Directors approved a 2024 share repurchase program pursuant to which the Company

may repurchase up to $ 10.0

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.

No repurchases occurred during the year ended December 31, 2024.

Subsequent to December 31, 2024, the Company repurchased 250,000 shares of common stock outstanding under the 2024 share repurchase program at prices ranging from $ 9.98

per share for a gross aggregate cost of approximately $ 3 .0

the quarter ended March 31, 2023, the Company repurchased 786 of its shares of common stock outstanding under its 2022 share repurchase

program for $ 12.5 million at prices ranging from $ 8,800.00 to $ 27,552.00 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 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 Value

Outstanding at December 31, 2021

Forfeitures or expirations

Outstanding at December 31, 2022

Forfeitures or expirations

Outstanding at December 31, 2023

Exercisable at December 31, 2023

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.

The fair value of the

award is measured on the grant date.

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

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

In addition, the Company issues

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

The Company also issues premium options to executive officers which have

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

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

January 2023, the Board of Directors approved a 2023 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.

During the quarter ended March 31, 2023, the Company repurchased

50 of its shares of common stock outstanding under the new 2023 share repurchase program at $ 22,784.00 per share for a gross aggregate

cost of $ 1.1 million.

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.

14 – 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:

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”).

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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 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 years.

As of December

31, 2024, no 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 year ended December 31, 2024 is as follows:

Exercise Price

Weighted-Average

Remaining Contractual Term

Intrinsic Value

at December 31, 2022

or expirations

at December 31, 2023

or expirations

at December 31, 2024

weighted average fair value of options granted during the year ended December 31, 2024, and December 31, 2023 was $ 868.00 per

share and $ 12,768.00 , respectively.

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.

value of the award is measured on the grant date.

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

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

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

assumptions used in the valuation of stock options granted during the years ended December 31, 2024 and 2023 were as follows:

December 31, 2024

December 31, 2023

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.

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.

interest rate

term of option

stock price volatility

dividend yield

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.

compensation expense relating to options granted of $ 4.8 million, of which $ 3.4 million and $ 1.4 million, related to General and

Administration and Research and Development, respectively was recognized for the year ended December 31, 2024.

Stock-based compensation

1 unchanged sentence

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, 2022.

As of December 31,

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

of December 31, 2024, the Company had approximately $ 3.4 million of total unrecognized compensation cost related to non-vested

awards granted under the Plans, which the Company expects to recognize over a weighted average period of 1.57 years.

Stock Purchase Plans

May 6, 2022, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2022 Employee Stock Purchase

(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.

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 December 31, 2023, 800,000 shares were available

for future sales under the 2023 ESPP.

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, 2024, 159 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.

6 unchanged sentences

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 December 31, 2023,

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

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

2024, 21 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.

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

June 30, 2024, approximately $ 33,000 of employee payroll deductions had accumulated and had been recorded in accrued expenses.

July 2024, 70 shares that were purchased as of June 30, 2024, under the 2022 ESPP, were issued.

Accordingly, during the third

quarter of 2024, approximately $ 4,000 of employee payroll deductions accumulated at June 30, 2024, related to acquiring such shares,

was transferred from accrued expenses to additional paid in capital.

The remaining $ 29,000 was returned to the employees.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

15 – STOCK WARRANTS

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

the year ended December 31, 2024, 113,155 prefunded common warrants were exercised.

the year ended December 31, 2024, 36 and 1 warrants with an exercise price of $ 1,600.00 and $ 320,000.00 , respectively, expired.

the year ended December 31, 2024, 8,700 and 8,700 warrants with an exercise price of $ 1,776.00 and $ 2,720.00 , respectively, were

returned and cancelled.

to December 31, 2024, 10,884 , 5,758

(as the Company received FDA acceptance of our NDA filing), and 1

warrants with an exercise price of $ 1,056.00 , $ 1,776.00

and $ 364,800.00 ,

respectively, expired.

Additionally,

with the closing of the financing on April 1, 2024, the Company entered into the Warrant Amendments (as defined in Note 13) with

certain holders of its warrants to purchase common stock, agreeing to amend the exercise price of each Existing Warrant to $ 1,056.00

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

Nasdaq Listing Rule 5635 or, if stockholder approval is not obtained by October 1, 2024, the exercise price would be automatically

amended to the Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) of the Company’s common stock on October 1, 2024,

if and only if the Minimum Price is below the then current exercise price.

The Company’s stockholders approved the proposal

to amend the exercise prices of the Existing Warrants to $ 1,056.00 per share and extend the termination dates at the annual meeting

of the Company’s stockholders held on May 22, 2024.

As such, the table above reflects the modified terms of the Existing

Warrants in effect as of December 31, 2024.

See Note 13 for further details.

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.

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

the year ended December 31, 2023, 1 warrant with an exercise price of $ 22,400,000.00 expired.

Company has various operating lease agreements, which are primarily for office space.

5 unchanged sentences

$ 0.6 million of which $ 0.3 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):

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2024, 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, 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:

new leases or amendments were entered into during the year ended December 31, 2024.

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.

The Company also recognized a corresponding

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

information related to leases is as follows:

lease expense was $ 0.3 and $ 0.6 million for the years ended December 31, 2024, and 2023, respectively.

information related to leases is as follows:

paid for amounts included in the measurement of lease liabilities:

December 31, 2024

December 31, 2023

Operating cash flow from operating leases (in thousands)

Weighted Average Remaining Lease Term

Operating leases

Weighted Average Discount Rate

Operating leases

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

cash flow from operating leases (in thousands)

Average Remaining Lease Term

Average Discount Rate

17 – COMMITMENTS

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

$ 12.7 million at December 31, 2024 for future work to be performed.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

contribution plan

Company has a qualified defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Code, whereby

6 unchanged sentences

subject to limitations under the Code.

The Company charged operations $ 1.3 million and $ 0.9 million for the year ended December

The Company charged operations $ 1.2 million and $ 1.3 million for the years ended December

31, 2024 and 2023, respectively, for contributions under the 401(k) Plan.

NOTE 22 – INCOME TAXES

Components of the net loss consist of the

following (in thousands):

18 – INCOME TAXES

Components of the net loss consist of the following

(in thousands):

Year ended December 31,

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

In 2024, the foreign losses

are primarily comprised of $ 49.4

million related to the Irish operations and $0.09

million related to Canada operations of Tonix International Holding.

In 2023, 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:

of the $ 98.4

million related to the Irish operations and $0.23

million related to the Canadian operations of Tonix International Holding.

A reconciliation of the effect

of applying the federal statutory rate to the net loss and the effective income tax rate used to calculate the Company’s income

tax provision is as follows:

Year Ended December 31,

1 unchanged sentence

Change in valuation allowance

Permanent differences

Foreign loss not subject to income tax

1 unchanged sentence

Income Tax Provision

Deferred tax assets

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

Deferred tax assets (liabilities)

and related valuation allowance as of December 31, 2024 and 2023 were as follows (in thousands):

Deferred tax assets/(liabilities):

Net operating loss carryforward

5 unchanged sentences

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

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

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, 2023 have been reduced to $ 0 .0 million to reflect IRC section 383 ownership changes

through December 31, 2024 and the resulting inability to utilize a portion of the R&D credit prior to its expiration.

At December 31, 2024,

the Company has $ 314 .0 million of Ireland NOL carryforwards that do not expire.

As of December 31, 2024, the Company's Federal NOL and

state net operating losses are fully limited in accordance with IRC section 382.

As such, there are no NOL carryforwards available as

of December 31, 2024.

Management assesses the

available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period

ended December 31, 2024.

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/(decrease) in the valuation

allowance for the years ended December 31, 2024 and 2023 were $ 17.4

million, and $ 14.5

million respectively.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as

income tax expense.

However, as of December 31, 2024 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, 2024, the Company's tax returns remain open and

subject to examination by the tax authorities for the tax years 2021 and after.

19 – SUBSEQUENT EVENTS

February 3, 2025, the Company paid $ 9.6 million as a result of a pay-off of its outstanding loan facility.

The pay-off amount paid by the Company in

connection with the termination of the Loan Agreement was pursuant to a pay-off letter and includes a prepayment fee of $ 1 .0 million

in accordance with the terms and provisions of the Loan Agreement.

February 20, 2025, the Company received a letter from The NASDAQ Stock Market LLC stating that 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, the Company’s stock had

regained compliance with the minimum bid price requirement of $ 1.00 per share for continued listing on the NASDAQ Capital Market,

as set forth in NASDAQ Listing Rule 5550(a)(2), and that the matter is now closed.

On February 25, 2025, the

Company granted options to purchase an aggregate of 449,708

shares of the Company’s common stock to employees with an exercise price of $ 8.05 .

Additionally, the Company granted options to purchase 221,558

of the Company’s common stock to certain employees with an exercise price of $ 10.06 .

Subsequent to December 31, 2024, the Company has sold 2.3 million shares

of common stock under the Sales Agreement, for net proceeds of approximately $ 46.3 million.

Subsequent to December 31, 2024, the Company repurchased 250,000 of its

shares of common stock outstanding under the 2024 share repurchase program at prices ranging from $ 9.98 to $ 14.33 per share for a gross

aggregate cost of approximately $ 3 .0 million.

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