Tonix Pharmaceuticals Holding Corp. 10-K

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TONIX PHARMACEUTICALS HOLDING CORP. Report of Independent Registered Public Accounting Firm F-2 Consolidated balance sheets as of December 31, 2024 and 2023 F-3 Consolidated statements of operations for the years ended December 31, 2024 and 2023 F-4 Consolidated statements of comprehensive loss for the years ended December 31, 2024 and 2023 F-5 Consolidated statements of stockholders’ equity for the years ended December 31, 2024 and 2023 F-6 – F-7 Consolidated statements of cash flows for the years ended December 31, 2024 and 2023 F-8 Notes to consolidated financial statements F-9 – F-35 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Tonix Pharmaceuticals Holding Corp. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Tonix Pharmaceuticals Holding Corp. and Subsidiaries (the “Company”) as of December 31, 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. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has continuing losses and negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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) 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. 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 $1.8 million is included in accrued expenses and other current liabilities in the December 31, 2024 consolidated balance sheet. 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 vendors. The estimation of clinical trial expenses was also identified as a critical accounting estimate by management. We identified the accrual for clinical trial expenses as a critical audit matter due to the significant judgment and estimation required by management in determining progress or state of completion of clinical trials or services completed. This in turn led to a high degree of auditor subjectivity, and significant audit effort was required in performing our procedures and evaluating audit evidence relating to estimates made by management. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. We obtained an understanding of Management’s process and evaluated the design of controls over developing its estimate of accrued and prepaid clinical trial expenses, including the process of estimating the expenses incurred to date based on the status of the clinical trials. Our procedures also included, among others, reading agreements and contract amendments with vendors, consultants and clinical research organizations and clinical site agreements in connection with conducting clinical trials, and evaluating the significant assumptions described above and the methods used in developing the clinical trial estimates and re-calculating the amounts that were unpaid and prepaid at the balance sheet date. We confirmed 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 commitments. 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. Impairment of long-lived assets As 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. For the 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. We 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 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. Our 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. Our 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. We have served as the Company’s auditor since 2010. EISNERAMPER LLP Iselin, New Jersey March 18, 2025 F- 2 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Par Value and Share Amounts) December 31, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 98,776 $ 24,948 Accounts receivable, net 3,683 — Inventory, net 8,408 13,639 Prepaid expenses and other current assets 8,135 9,181 Total current assets 119,002 47,768 Property and equipment, net 42,252 94,028 Intangible assets, net 120 9,743 Goodwill — 965 Operating lease right-to-use assets 565 824 Other non-current assets 951 1,129 Total assets $ 162,890 $ 154,457 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,546 $ 3,782 Accrued expenses and other current liabilities 10,667 12,482 Term loan payable, short term 2,820 2,350 Lease liability, short term 274 270 Total current liabilities 18,307 18,884 Term loan payable, long term 4,667 6,561 Series C warrant liabilities — 14,595 Series D warrant liabilities — 8,260 Lease liability, long term 358 632 Total liabilities 23,332 48,932 Commitments (See Note 17) — Stockholders’ equity: Preferred stock, $ 0.001 par value; 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; 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 4 — Additional paid in capital 870,503 706,415 Accumulated deficit ( 730,694 ) ( 600,658 ) Accumulated other comprehensive loss ( 255 ) ( 232 ) Total stockholders’ equity 139,558 105,525 Total liabilities and stockholders’ equity $ 162,890 $ 154,457 See the accompanying notes to the consolidated financial statements F- 3 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) Year ended December 31, 2024 2023 REVENUES: Product revenue, net $ 10,094 $ 7,768 COSTS AND EXPENSES: Cost of sales 7,765 4,741 Research and development 39,972 86,655 Selling, general and administrative 40,101 34,752 Asset impairment charges 58,957 — Total Operating Expenses 146,795 126,148 Operating loss ( 136,701 ) ( 118,380 ) Grant income 2,594 — Gain on change in fair value of warrant liabilities 6,150 — Other (expense) income, net ( 2,079 ) 1,722 Net loss available to common stockholders $ ( 130,036 ) $ ( 116,658 ) Net loss to common stockholders per common share, basic and diluted $ ( 176.60 ) $ ( 14,720.25 ) Weighted average common shares outstanding, basic and diluted 736,339 7,925 See the accompanying notes to the consolidated financial statements F- 4 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In Thousands) Year ended December 31, 2024 2023 Net loss $ ( 130,036 ) $ ( 116,658 ) Other comprehensive loss: Foreign currency translation loss ( 23 ) ( 65 ) Comprehensive loss $ ( 130,059 ) $ ( 116,723 ) See the accompanying notes to the consolidated financial statements F- 5 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands, Except Share and Per Share Amounts) Accumulated Additional Other Common stock Paid in Comprehensive Accumulated Shares Amount Capital Gain (loss) Deficit Total Balance, December 31, 2023 20,926 $ — $ 706,415 $ ( 232 ) $ ( 600,658 ) $ 105,525 Issuance of common stock upon exercise of prefunded warrants 113,155 — — — — — Issuance of common stock under At-the-market offering, net of transactional expenses of $ 4,977 4,174,122 4 128,363 — — 128,367 Issuance of common stock, net of transactional expenses of $ 2,261 77,635 — 14,215 — — 14,215 Fair value of warrants reclassified from liabilities to equity — — 26,682 — — 26,682 Fair value of warrants classified from equity to liabilities — — ( 9,977 ) — — ( 9,977 ) Employee stock purchase plan 91 — 27 — — 27 Stock-based compensation — — 4,778 — — 4,778 Foreign currency transaction gain — — — ( 23 ) — ( 23 ) Net loss — — — — ( 130,036 ) ( 130,036 ) Balance, December 31, 2024 4,385,929 $ 4 $ 870,503 $ ( 255 ) $ ( 730,694 ) $ 139,558 See the accompanying notes to the consolidated financial statements F- 6 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In Thousands, Except Share and Per Share Amounts) Accumulated Additional Other Common stock Paid in Comprehensive Accumulated Shares Amount Capital Gain (loss) Deficit Total Balance, December 31, 2022 6,446 $ — $ 677,387 $ ( 167 ) $ ( 470,038 ) $ 207,182 Repurchase of common stock under Share Repurchase Program, including transactional expenses of $ 334 ( 836 ) — ( 3 ) — ( 13,962 ) ( 13,965 ) Issuance of common stock under 2022 Purchase agreement 30 — 441 — — 441 Issuance of common stock under At-the-market offering, net of transactional expenses of $ 137 322 — 3,024 — — 3,024 Issuance of common stock and warrants under AGP Financing, net of transactional expenses of $ 2,663 9,977 — 16,262 — — 16,262 Issuance of common stock upon exercise of prefunded common warrants 4,982 — — — — — Employee stock purchase plan 5 — 29 — — 29 Stock-based compensation — — 9,275 — — 9,275 Foreign currency transaction gain — — — ( 65 ) — ( 65 ) Net loss — — — — ( 116,658 ) ( 116,658 ) Balance, December 31, 2023 20,926 $ — $ 706,415 $ ( 232 ) $ ( 600,658 ) $ 105,525 See the accompanying notes to the consolidated financial statements F- 7 TONIX PHARMACEUTICALS HOLDING CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Year ended December 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 130,036 ) $ ( 116,658 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,421 4,291 Asset impairment charges 58,957 — Stock-based compensation 4,778 9,275 Change in fair value of warrant liabilities ( 6,150 ) 283 Offering costs allocated to warrant liabilities — 903 Inventory write-off 1,490 — Amortization of debt discounts 840 — Gain on sale of property and equipment — ( 62 ) Changes in operating assets and liabilities: Accounts receivable ( 3,683 ) — Inventory 3,741 61 Prepaid expenses and other 3,613 1,573 Accounts payable 927 ( 3,490 ) Operating lease liabilities and ROU asset, net ( 13 ) 35 Accrued expenses and other current liabilities 1,190 1,786 Net cash used in operating activities ( 60,925 ) ( 102,003 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of business — ( 22,174 ) Disposal of property and equipment — 999 Purchase of property and equipment ( 120 ) ( 7,895 ) Net cash used in investing activities ( 120 ) ( 29,070 ) CASH FLOWS FROM FINANCING ACTIVITIES: Deferred payment related to purchase of business ( 3,000 ) — Proceeds from ESPP 27 29 Repayments of term loan ( 2,350 ) — Redemption of convertible preferred stock — — Proceeds from debt financing — 8,942 Proceeds, net of $ 7,238 and $ 2,800 expenses, from sale of common stock and warrants 140,195 18,939 Proceeds from allocated warrant liabilities — 22,572 Repurchase of common stock — ( 13,965 ) Net cash provided by financing activities 134,872 36,517 Effect of currency rate change on cash 4 ( 65 ) Net increase (decrease) in cash, cash equivalents and restricted cash 73,831 ( 94,621 ) Cash, cash equivalents and restricted cash beginning of the period 25,849 120,470 Cash, cash equivalents and restricted cash end of period $ 99,680 $ 25,849 Supplemental disclosures of cash flow information: Interest paid $ 1,234 $ 88 Purchases of property and equipment included in accounts payable and accrued liabilities $ — $ 106 Net ATM proceeds received after year-end $ 2,387 $ — Debt financing costs included in accrued liabilities and other current liabilities $ — $ 85 Issuance costs included in accrued liabilities and other current liabilities $ — 117 New operating leases and lease amendments $ — 898 See the accompanying notes to consolidated financial statements F- 8 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – BUSINESS 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. TNX-102 SL 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 diseases. 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 The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and negative cash flows from operating activities. At December 31, 2024, the Company had working capital of approximately $ 100.7 million. At December 31, 2024, the Company had an accumulated deficit of approximately $ 730.7 million. The Company held unrestricted cash and cash equivalents of approximately $ 98.8 million as of December 31, 2024. F- 9 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company believes 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 substantial doubt about the Company’s ability to continue as a going concern. The Company continues to face significant challenges and uncertainties and must obtain additional funding through public and private financing and collaborative arrangements with strategic partners to increase the funds available to fund operations. However, the Company may not be able to raise capital on terms acceptable to the Company, or at all. Without additional funds, it may be forced to delay, scale back or eliminate some 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, 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 POLICIES 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 The Company’s primary efforts are devoted to conducting research and development of innovative pharmaceutical and biological products to address public health challenges. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future. Further, the Company now has commercial products available for sale, and generates revenue from the sale of its Zembrace SymTouch and Tosymra products, with no assurance that the Company will be able to generate sufficient cash flow to fund operations from its commercial products or products in development if and when approved. In addition, there can be no assurance that the Company’s research and development will be successfully completed or that any product will be approved or commercially viable. F- 10 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Use of estimates The preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include, but are not limited to, 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 The Company accounts for business combinations in accordance with the provisions of ASC 805, Business Combinations and ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Business combinations are accounted for using the acquisition method, whereby the consideration transferred is allocated to the net assets acquired based on their respective fair values measured on the acquisition date. The difference between the fair value of these assets and the purchase price is recorded as goodwill. Transaction costs other than those associated with the issue of debt or equity securities, and other direct costs of a business combination are not considered part of the business acquisition transaction and are expensed as incurred. Segment Information and Concentrations 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. F- 11 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cash, Cash Equivalents and Restricted Cash The Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original maturity of three months or less when purchased. At December 31, 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: December 31, 2024 December 31, 2023 (in thousands) Cash and cash equivalents $ 98,776 $ 24,948 Restricted cash 904 901 Total $ 99,680 $ 25,849 Accounts Receivable, net Accounts receivable consists of amounts due from our wholesale and other third-party distributors and pharmacies and have standard payment terms that generally require payment within 30 to 90 days. For certain customers, the accounts receivable for the customer is net of cash discounts, chargebacks and customer rebates. We do not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We provide reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. As of December 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 Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, and accounts receivable. We attempt to minimize the risks related to cash and cash equivalents by investing in a broad and diverse range of financial instruments, and we have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the variety of customers using our products, as well as their dispersion across different geographic areas. We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business. F- 12 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Inventories Inventories are recorded at the lower of cost or net realizable value, with cost determined by the weighted average cost method. 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 recognized. 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 Property and equipment are stated at cost, less accumulated depreciation. 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 Intangible assets deemed to have finite lives are carried at acquisition-date fair value less accumulated amortization and impairment, if any. Finite-lived intangible assets consist of developed technology intangible assets acquired in connection with the acquisition of certain products from Upsher Smith Laboratories, LLC (“Upsher Smith”) consummated on June 30, 2023 (See Note 5). The acquired intangible assets are amortized using the straight-line method over the estimated useful lives of the respective assets. Amortization expense for 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 analysis. 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 31, 2024. F- 13 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Goodwill Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is reviewed for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. 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. Leases The Company determines if an arrangement is, or contains, a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the transition date and subsequent lease commencement dates in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments made under operating leases is recognized on a straight-line basis over the lease term. Deferred financing costs Deferred financing costs represent the cost of obtaining financing arrangements and are amortized over the term of the related debt agreement using the effective interest method. Deferred financing costs related to term debt arrangements are reflected as a direct reduction of the related debt liability on the consolidated balance sheet. Amortization of deferred financing costs are included in interest expense on the consolidated statements of operations. Original issue discount Certain term debt issued by the Company provides the debt holder with an original issue discount. Original issue discounts are reflected as a direct reduction of the related debt liability on the consolidated balance sheets and are amortized over the term of the related debt agreement using the effective interest method. Amortization of original issue discounts are included in interest expense on the consolidated statements of operations Revenue Recognition The Company records and recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company’s revenues primarily result from contracts with customers, which are generally short-term and have a single performance obligation - the delivery of product. The Company’s performance obligation to deliver products is satisfied at the point in time that the goods are received by the customer, which is when the customer obtains title to and has the risks and rewards of ownership of the products, which is generally upon shipment or delivery to the customer as stipulated by the terms of the sale agreements. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Our contractual payment terms are typically 30 to 90 days . F- 14 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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 products sold are subject to a variety of deductions. Revenues are recognized net of estimated rebates and chargebacks, cash discounts, distributor fees, sales return provisions and other related deductions. Deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur. Accruals for these provisions are presented in the consolidated financial statements as reductions to gross sales in determining net sales, and as a contra asset within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). Amounts recorded for revenue deductions can result from a complex series of judgements about future events and uncertainties and can rely heavily on estimates and assumptions. The following section briefly describes the nature of the Company’s provisions for variable consideration and how such provisions are estimated: Chargebacks - The Company sells a portion of its products indirectly through wholesaler distributors, and enters into specific agreements with these indirect customers to establish pricing for the Company’s products, and in-turn, the indirect customers and entities independently purchase these products. Because the price paid by the indirect customers and/or entities is lower than the price paid by the wholesaler, the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesale customer’s purchase price. The Company’s provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels as well as historical chargeback rates. The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience. Rebates - The Company participates in certain government and specific sales rebate programs which provides discounted prescription drugs to qualified recipients, and primarily relate to Medicaid and managed care rebates, pharmacy rebates, Tri-Care rebates and discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances. ● Managed Care Rebates are processed in the quarter following the quarter in which they are earned. The managed care reporting entity submits utilization data after the end of the quarter and the Company processes the payment in accordance with contract terms. All rebates earned but not paid are estimated by the Company according to historical payments trended for market growth assumptions. ● Medicaid and State Agency rebates are based upon historical experience of claims submitted by various states. The Company monitors Medicaid legislative changes to determine what impact such legislation may have on the provision for Medicaid rebates. The accrual of State Agency reserves is based on historical payment rates. There is an approximate three-month lag from the time of product sale until the rebate is paid. ● Tri-Care represents a regionally managed health care program for active duty and retired members, dependents and survivors of the US military. The Tri-Care program supplements health care resources of the US military with civilian health care professionals for greater access and quality healthcare coverage. Through the Tri-Care program, the Company provides pharmaceuticals on a direct customer basis. Prices of pharmaceuticals sold under the Tri-Care program are pre-negotiated and a reserve amount is established to represent the proportionate rebate amount associated with product sales. ● Coverage Gap refers to the Medicare prescription drug program and represents specifically the period between the initial Medicare Part D prescription drug program coverage limit and the catastrophic coverage threshold. Applicable pharmaceutical products sold during this coverage gap timeframe are discounted by the Company. Since the nature of the program is that coverage limits are reset at the beginning of the calendar year; the payments escalate each quarter as the participants reach the coverage limit before reaching the catastrophic coverage threshold. The Company has determined that the cost of this reserve will be viewed as an annual cost. Therefore, the accrual will be incurred evenly during the year with quarterly review of the liability based on payment trends and any revision to the projected annual cost. F- 15 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Prompt-Pay and other Sales Discounts - The Company provides for prompt pay discounts, which early payments are recorded as a reduction of revenue and as a reduction in the accounts receivable at the time of sale based on the customer’s contracted discount rate. Consumer sales discounts represent programs the Company has in place to reduce costs to the patient. This includes copay buy down and eVoucher programs. Product Returns - Consistent with industry practice, the Company offers customers a right to return any unused product. The customer’s right of return commences typically six months prior to product expiration date and ends one year after product expiration date. Products returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price. The Company estimates the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates products returns as a percentage of sales to its customers. The rate is estimated by using historical sales information, including its visibility and estimates into the inventory remaining in the distribution channel. Adjustments are made to the current provision for returns when data suggests product returns may differ from original estimates. Research and Development Costs The Company outsources certain of its research and development efforts and expenses these costs as incurred, including the cost of manufacturing products for testing, as well as licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired has been expensed as research and development costs, as such property is related to particular research and development projects and had no alternative future uses. The Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company accounts for trial expenses according to the timing of various aspects of the trial. The Company determines accrual estimates taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Government Grants From time to time, the Company may enter into arrangements with governmental entities for the purpose of obtaining funding for research and development activities. The Company is reimbursed for costs incurred that are associated with specified research and development activities included in the grant application approved by the government authority and, in certain arrangements. U.S. 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. F- 16 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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. During the year ended December 31, 2024, we received $ 1.4 million in funding as a reduction of related research and development expense . 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 the U.S. 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 DTRA grant. 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 . All stock-based payments to employees and to nonemployees for their services, including grants of restricted stock units (“RSUs”), and stock options, are measured at fair value on the grant date and recognized in the consolidated statements of operations as compensation expense over the requisite service period. The Company accounts for share-based awards in accordance with the provisions of the Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. Foreign Currency Translation Operations of the Company’s Canadian subsidiary, Tonix Pharmaceuticals (Canada), Inc., are conducted in local currency, which represents its functional currency. The U.S. dollar is the functional currency of the other foreign subsidiaries. Balance sheet accounts of the Canadian subsidiary were translated from foreign currency into U.S. dollars at the exchange rate in effect at the balance sheet date and income statement accounts were translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process were included in accumulated other comprehensive loss on the consolidated balance sheets. Comprehensive Income (Loss) Comprehensive income (loss) is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income (loss) represents foreign currency translation adjustments. Income Taxes Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized. The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2024, the Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. F- 17 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative Instruments and Warrant Liabilities The Company evaluates all of its financial instruments, including issued warrants to purchase common stock under ASC 815 – Derivatives and Hedging, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives (See Note 15). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates, which is adjusted for instrument-specific terms as applicable. From time to time, certain equity-linked instruments may be classified as derivative liabilities due to the 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 under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the classification of its contracts at issuance and at each subsequent reporting date. In the event that reclassification of contracts between equity and assets or liabilities is necessary, the Company first allocates remaining authorized shares to equity on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest issuance date receiving the first allocation of shares. 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 The computation of basic and diluted loss per share for the year ended December 31, 2024 and 2023 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period. Prefunded warrants are assumed exercised on date of issuance and are included in the basic earnings per share (“EPS”) calculation. 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 securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2024 and 2023, are as follows: 2024 2023 Warrants to purchase common stock 45,664 65,431 Options to purchase common stock 3,865 774 Totals 49,529 66,205 F- 18 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently 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 (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. The guidance will first be effective in our annual disclosures for the year ending December 31, 2025, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures. In March 2024, the SEC adopted new rules relating to the disclosure of a range of climate-change-related physical and transition risks, data, and opportunities. The adopted rule contains several new disclosure obligations, including, (i) disclosure on how the board of directors and management oversee climate-related risks and certain climate-related governance items, (ii) disclosure of information related to a registrant’s climate-related targets, goals, and/or transition plans, and (iii) disclosure on whether and how climate-related events and transition activities impact line items above a threshold amount on a registrant’s consolidated financial statements, including the impact of the financial estimates and the assumptions used. This new rule will first be effective in the Company’s disclosures for the year ending December 31, 2027. The Company is in the process of assessing the impact on our consolidated financial statements and disclosures. 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, 2024 and 2023: December 31, 2024 December 31, 2023 (in thousands) Raw Materials $ 3,071 $ 3,611 Work-in-process 213 2,539 Finished Goods 5,124 7,489 Total Inventory $ 8,408 $ 13,639 F- 19 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following (in thousands): December 31, 2024 December 31, 2023 (in thousands) Property and equipment, net: Land $ 8,011 $ 8,011 Land improvements 305 326 Buildings 24,504 66,749 Office furniture and equipment 1,371 2,366 Laboratory equipment 12,124 21,904 Leasehold improvements 34 34 Property and equipment gross 46,349 99,390 Less: Accumulated depreciation and amortization ( 4,097 ) ( 5,362 ) Property and equipment, net $ 42,252 $ 94,028 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 The following table provides the gross carrying value of goodwill as follows: Amounts (in thousands) Balance at December 31, 2023 $ 965 Impairment of goodwill ( 965 ) 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 provides the gross carrying amount and accumulated amortization for each major class of intangible asset: December 31, 2024 December 31, 2023 (in thousands) Intangible assets subject to amortization Developed technology $ 10,100 $ 10,100 Less: Impairment charge 9,147 — Less: Accumulated amortization 953 477 Total $ — $ 9,623 Intangible assets not subject to amortization Internet domain rights $ 120 $ 120 Total intangible assets, net $ 120 $ 9,743 F- 20 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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 Fair value measurements affect the Company’s accounting for certain of its financial assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes: Level 1: Observable inputs, such as quoted prices in active markets. Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category includes U.S. government agency-backed debt securities and corporate-debt securities. Level 3: Unobservable inputs in which there is little or no market data. As of December 31, 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 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 per share. 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”) was applied. 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: Year ended Year ended December 31, 2024 December 31, 2023 Common stock price $ 608.00 - 988.80 $ 1,289.60 Risk-free rate 4.01 % - 5.37 % 3.84 % - 4.23 % Expected term (in years) 0.86 - 5.00 1.78 - 5.15 Expected volatility 105.00 % - 120.00 % 108.00 % Discount for lack of marketability N/A 5.00 % F- 21 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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 $ 22,855 Fair value - mark to market adjustment ( 7,005 ) Warrants reclassified from liabilities to equity ( 15,850 ) Warrants reclassified from equity to liabilities 9,977 Fair value - mark to market adjustment 855 Warrants reclassified from liabilities to equity ( 10,832 ) 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: Warrant liabilities Balance at December 31, 2022 $ — Warrant liabilities issued 22,572 Fair value - mark to market adjustment 283 Balance at December 31, 2023 $ 22,855 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 Components of selected captions in the consolidated balance sheets consist of: December 31, 2024 December 31, 2023 Prepaid expenses and other current assets: (in thousands) Contract-related $ 881 $ 4,590 Government grants 793 199 At-the-market receivable 2,387 — Non-trade receivables 953 — Debt interest and fees 180 1,513 Inventory — 508 Insurance 1,392 143 Other 1,549 2,228 $ 8,135 $ 9,181 Accrued expenses and other current liabilities: Contract-related $ 1,816 $ 2,980 Upsher Smith obligation — 3,000 Compensation and compensation-related 4,496 4,361 Gross-to-net deductions 3,658 743 Professional fees and other 697 1,398 $ 10,667 $ 12,482 F- 22 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 – DEBT FINANCING Long-term debt consists of the following: December 31, 2024 December 31, 2023 Term Loan $ 8,650 $ 11,000 Less: current portion ( 2,820 ) ( 2,350 ) Total long-term debt 5,830 8,650 Less: unamortized debt discount and deferred financing costs ( 1,163 ) ( 2,089 ) Total long-term debt, net $ 4,667 $ 6,561 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”) for a 36 -month term loan (the “Term Loan”) in the aggregate principal amount of $ 11 .0 million, with a maturity date of December 8, 2026 (the “Maturity Date”). The Term Loan was funded with an original issue discount of 9 % of the principal amount of the Term Loan, or $ 1 .0 million, which is being amortized over the term of the debt as an adjustment to the effective interest rate on the outstanding borrowings. Borrowings under the Term Loan bear interest at a fluctuating rate equal to the greater of (i) the prime rate as defined in the Loan Agreement plus 3.5 % and (ii) 12 %. Interest is payable monthly in arrears commencing in December 2023. In connection with the Term Loan, the Company deposited into a reserve account $ 1.8 million to be used exclusively to fund interest payments related to the Term Loan. 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 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. In addition, the Company must pay a monthly collateral monitoring charge equal to 0.23 % of the outstanding principal amount of the term loan as of the date of payment. The Company incurred $ 1.1 million in issuance costs, which is being amortized over the term of the debt as an adjustment to the effective interest rate on the outstanding borrowings. The Loan Agreement provides for voluntary prepayments of the Term Loan, in whole or in part, subject to a prepayment premium. The Loan Agreement contains customary affirmative and negative covenants by the Company, which among other things, will require the Borrowers to provide certain financial reports to the lenders, to maintain a deposit account to fund interest payments, and limit the ability of the Company to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, sell assets, engage in certain transactions, and effect a consolidation or merger. The obligations of the Company under the Loan Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, covenant default, insolvency, material judgements, inaccuracy of representations and warranties, invalidity of guarantees. The Term Loan is secured by first priority security interests in the Company’s R&D Center in Frederick, Maryland, the Advanced Development Center in North Dartmouth, Massachusetts, and substantially all of the relevant deposit accounts. During 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. F- 23 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 – STOCKHOLDERS’ EQUITY 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 shares. 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, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of the Company’s common stock from 160,000,000 to 1,000,000,000 shares (the “Charter Amendment”). The Charter Amendment was approved by the Company’s shareholders at a special meeting of shareholders held on January 25, 2024. 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: Year ended December 31, 2024 2023 Zembrace Symtouch $ 8,546 $ 6,304 Tosymra 1,548 1,464 Total product revenues $ 10,094 $ 7,768 The Company recognized revenue beginning July 1, 2023, as a result of the acquisition of two marketed products. Gross-to-Net Sales Accruals We record gross-to-net sales accruals for chargebacks, rebates, sales and other discounts, and product returns, which are all customary to the pharmaceutical industry. 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. F- 24 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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 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 in the U.S. as follows: for Tosymra, 4 % for net sales of $ 0 to $ 30 million, 7 % of net sales of $ 30 to $ 75 million; 9 % for net sales of $ 75 to $ 100 million; 12 % for net sales of $ 100 to $ 150 million; and 15 % for net sales greater than $ 150 million. Royalty payments with respect to Tosymra are payable until the expiration or termination of the product’s Orange Book listed patent(s) with respect to the United States or, outside the United States, the expiration of the last valid claim covering the product in the relevant country of the territory. For Zembrace, royalty payments on annual net sales in the U.S. are 3 % for net sales of $ 0 to $ 30 million, 6 % of net sales of $ 30 to $ 75 million; 12 % for net sales of $ 75 to $ 100 million; 16 % for net sales of greater than $ 100 million. Such royalty payments are payable until July 19, 2025. 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. 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 Amount Closing cash consideration $ 22,174 Inventory adjustment payment liability 1,348 Deferred payment liability 3,000 Purchase price to be allocated $ 26,522 The USL Acquisition was accounted for as a business combination using the acquisition method, in accordance with the provisions of ASC 805, Business Combinations and ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. 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. F- 25 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table represents the allocation of the purchase price to the assets acquired by the Company in the USL Acquisition recognized in the Company’s consolidated balance sheets (in thousands): Purchase price allocation Amount Inventory $ 13,700 Prepaid expenses and other 1,757 Intangible assets, net 10,100 Goodwill 965 Fair value of assets acquired $ 26,522 The acquired inventory consists of Upsher Smith’s raw materials, semi-finished goods, and finished goods inventory as of the Closing date. The fair value was determined based on the estimated selling price of the inventory, less the estimated total costs to complete, disposal effort and holding costs. Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows (in thousands): Fair Value Useful Life (years) Developed technology - Tosymra $ 3,400 9 Developed technology - Zembrace 6,700 14 Total $ 10,100 The developed technology intangible assets related to Zembrace and Tosymra includes the value associated with the acquired patents, customer relationships, and trademarks and trade names associated with the technology. The developed technology intangible assets were valued as composite assets under the premise that each asset is reliant on one another to generate cash flow, is not considered separable from the technology, and are assumed to have similar useful lives. The composite intangible assets were valued using a multi-period excess earnings method and are being amortized over their estimated useful lives using the straight-line method of amortization. The key assumptions used in estimating the fair values of intangible assets include forecasted financial information, the weighted average cost of capital, customer retention rates, and certain other assumptions. The fair values assigned to the assets acquired are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions. 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. The 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 31, 2024. Supplemental Pro Forma Information 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. 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. F- 26 TONIX PHARMACEUTICALS HOLDING CORP. NOTES 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 Company. 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 WITH HEALION On February 2, 2023, the Company entered into an asset purchase agreement (the “Healion Asset Purchase Agreement”) with Healion Bio Inc., (“Healion”) pursuant to which the Company acquired all the pre-clinical infectious disease assets of Healion, including its portfolio of next-generation antiviral technology assets. Healion’s drug portfolio includes a class of broad-spectrum small molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including TNX-3900, formerly known as HB-121. As consideration for entering into the Healion Asset Purchase Agreement, the Company paid $ 1.2 million to Healion. Because the Healion intellectual property was acquired prior to U.S. Food and Drug Administration (FDA) approval, the cash consideration totaling $ 1.2 million, was expensed as research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business. NOTE 13 – SALE OF COMMON STOCK 2024 At-the-Market Offerings 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 vary. 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. F- 27 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 2024 Financings On 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 . The 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. On 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 . The 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. March 2024 Financing On 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 1, 2024. The offering price per share of common stock was $ 960.00 , and the offering price per share of pre-funded warrants was $ 959.68 . 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 $ 3.9 million, after deducting the underwriting discount and other offering expenses. 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”). The 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, 2029 ; 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 ; the 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 1, 2029 . The other terms of the Existing Warrants remained unchanged. The 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. F- 28 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 2023 Financing On 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) 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 $ 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. The 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. The 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. Upon 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 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. The $ 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, 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. On 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. F- 29 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 2023 Financing On September 28, 2023, the Company sold 1,266 shares of common stock; 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 3, 2023. 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 . 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 $ 4 .0 million, after deducting the underwriting discount and other offering expenses. July 2023 Financing On July 27, 2023, the Company sold 791 shares of common stock; 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 . The 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 expenses. 2020 At-the-Market Offerings 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 million. Stock repurchases In 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 to $ 14.33 per share for a gross aggregate cost of approximately $ 3 .0 million. During 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 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. 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 14 – 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”). F- 30 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under the terms of the Amended and Restated 2020 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights (“SARs”), (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up to 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. General A summary of the stock option activity and related information for the Plans for the year ended December 31, 2024 is as follows: Shares Weighted- Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at December 31, 2022 435 $ 1,069,056 8.70 $ — Grants 374 $ 14,763 — — Exercised — — Forfeitures or expirations ( 35 ) 358,117 Outstanding at December 31, 2023 774 $ 276,359,750 8.75 $ — Grants 3,461 $ 1,042 — $ — Exercised — — Forfeitures or expirations ( 370 ) $ 288,965,154 Outstanding at December 31, 2024 3,865 $ 27,540,609 8.74 $ — Exercisable at December 31, 2024 936 $ 101,743,715 7.27 $ — The 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. The Company measures the fair value of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions discussed below, and the closing market price of the Company’s common stock on the date of the grant. The fair value of the award is measured on the grant date. One-third of most stock options granted pursuant to the Plans vest 12 months from the date of grant and 1/36th each month thereafter for 24 months and expire ten years from the date of grant. In addition, the Company issues options to directors which vest over a one-year period. The Company also issues premium options to executive officers which have an exercise price greater than the grant date fair value and has issued performance-based options which vest when target parameters are met or probable of being met, subject in each case to a one-year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line method. F- 31 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The assumptions used in the valuation of stock options granted during the years ended December 31, 2024 and 2023 were as follows: Year Ended December 31, 2024 Year Ended December 31, 2023 Risk-free interest rate 3.58 % to 5.33 % 3.42 % to 4.35 % Expected term of option 5.25 to 10 years 5.0 to 10 years Expected stock price volatility 111.89 % - 140.42 % 122.19 % - 142.72 % Expected dividend yield 0.0 0.0 The risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on the Company’ historical stock price volatility. Stock-based compensation expense relating to options granted of $ 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 expense relating to options granted of $ 9.3 million, of which $ 6.4 million and $ 2.9 million, related to General and Administration and Research and Development, respectively was recognized for the year ended December 31, 2023. As 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. Employee Stock Purchase Plans On May 6, 2022, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2022 Employee Stock Purchase Plan. (the “2022 ESPP”), which was replaced by the Tonix Pharmaceuticals Holdings Corp. 2023 Employee Stock Purchase Plan (the “2023 ESPP”, and together with the 2022 ESPP, the “ESPP Plans”), which was approved by the Company’s stockholders on May 5, 2023. 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 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, 2024, 159 shares were available for future sales under the 2023 ESPP. The ESPP Plans are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the year ended December 31, 2024 and 2023, $ 27,000 and $ 34,000 , respectively, was expensed. In January 2023, 5 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 had accumulated and had been recorded in accrued expenses. In January 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. The remaining $ 20,000 was returned to the employees. As of June 30, 2024, approximately $ 33,000 of employee payroll deductions had accumulated and had been recorded in accrued expenses. In 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. F- 32 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 – STOCK WARRANTS The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at December 31, 2024: Exercise Number Expiration Price Outstanding Date $ 1,056.00 4,585 April 2029 $ 1,056.00 2,782 April 2029 $ 1,056.00 2,782 April 2025 $ 1,056.00 2,172 April 2029 $ 1,056.00 10,884 February 2025 $ 1,056.00 10,884 April 2029 $ 1,600.00 36 October 2028 $ 1,776.00 5,758 January 2025 $ 2,720.00 5,758 December 2028 $ 3,200.00 22 August 2028 $ 364,800.00 1 February 2025 45,664 During the year ended December 31, 2024, 113,155 prefunded common warrants were exercised. For the year ended December 31, 2024, 36 and 1 warrants with an exercise price of $ 1,600.00 and $ 320,000.00 , respectively, expired. For 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. Subsequent 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. No common warrants were exercised during the year ended December 31, 2023. For the year ended December 31, 2023, 1 warrant with an exercise price of $ 22,400,000.00 expired. NOTE 16 – LEASES The Company has various operating lease agreements, which are primarily for office space. These agreements frequently include one or more renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At December 31, 2024, the Company has right-of-use assets of $ 0.6 million and a total lease liability for operating leases of $ 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. F- 33 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At 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, 2025 $ 299 2026 142 2027 139 2028 101 2029 7 Included interest ( 56 ) $ 632 No 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. Other information related to leases is as follows: Operating lease expense was $ 0.3 and $ 0.6 million for the years ended December 31, 2024, and 2023, respectively. Other information related to leases is as follows: Cash paid for amounts included in the measurement of lease liabilities: Year Ended December 31, 2024 Year Ended December 31, 2023 Operating cash flow from operating leases (in thousands) $ 292 $ 556 Weighted Average Remaining Lease Term Operating leases 3.10 years 3.78 years Weighted Average Discount Rate Operating leases 4.92 % 4.53 % NOTE 17 – COMMITMENTS Contractual agreements The 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. F- 34 TONIX PHARMACEUTICALS HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Defined contribution plan The Company has a qualified defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Code, whereby all eligible employees may participate. Participants may elect to defer a percentage of their annual pretax compensation to the 401(k) Plan, subject to defined limitations. The Company is required to make contributions to the 401(k) Plan equal to 100 percent of each participant’s pretax contributions of up to six percent of his or her eligible compensation, and the Company is also required to make a contribution equal to three percent of each participant’s salary, on an annual basis, subject to limitations under the Code. The Company charged operations $ 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 18 – INCOME TAXES Components of the net loss consist of the following (in thousands): Year ended December 31, 2024 2023 Foreign $ ( 49,444 ) $ ( 98,204 ) Domestic ( 80,592 ) ( 18,454 ) Total $ ( 130,036 ) $ ( 116,658 ) 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 $ 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, 2024 2023 Statutory federal income tax ( 21.0 )% ( 21.0 )% Change in valuation allowance 14.4 % 11.7 % Permanent differences ( 1.0 )% 0.2 % Foreign loss not subject to income tax 3.2 % 7.2 % Attribute reduction from control change 4.3 % 0.9 % Other 0.1 % 1.0 % Income Tax Provision 0.0 % 0.0 % Deferred tax assets (liabilities) and related valuation allowance as of December 31, 2024 and 2023 were as follows (in thousands): December 31, 2024 2023 Deferred tax assets/(liabilities): Net operating loss carryforward $ 39,255 $ 32,997 Stock-based compensation 9,170 10,276 Fixed assets 9,617 — Other 4,829 2,211 Total deferred assets 62,871 45,484 Valuation allowance ( 62,871 ) ( 45,484 ) Net deferred tax assets $ — $ — The Company has incurred research and development (“R&D”) expenses, a portion of which qualifies for tax credits. The Company conducted an R&D credit study to quantify the amount of credits and has claimed an R&D credit on its 2014-2017 tax returns. A portion of these R&D credit carryforwards are subject to annual limitations in their use in accordance with Internal Revenue Service Code ("IRC") section 383. The R&D credit carryforwards at December 31, 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 tax assets. 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. NOTE 19 – SUBSEQUENT EVENTS On 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. 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. 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 shares 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. F- 35 ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.