What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-11 compared with 2025-05-12 · 545 added, 364 removed, 200 unchanged (82% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s

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

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

You can identify these statements by forward-looking

words such as “may” “will,” “expect,” “anticipate,” “believe,” “estimate”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

This Management’s Discussion

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

current views with respect to future events and financial performance.

You can identify these statements by forward-looking words such

as “may” “will,” “expect,” “anticipate,” “believe,” “estimate”

and “continue,” or similar words.

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

Readers are urged to carefully

review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange

Important factors known to us could cause actual results to differ materially from those in forward-looking

We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of

unanticipated events or changes in the future operating results over time.

We believe that its assumptions are based upon reasonable data

derived from and known about our business and operations.

No assurances are made that actual results of operations or the results of our

future activities will not differ materially from its assumptions.

Factors that could cause differences include, but are not limited to:

are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with

the Securities and Exchange Commission.

Important factors known to us could cause actual results to differ materially

from those in forward-looking statements.

We undertake no obligation to update or revise forward-looking statements to reflect

changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time.

We believe that

its assumptions are based upon reasonable data derived from and known about our business and operations.

No assurances are made

that actual results of operations or the results of our future activities will not differ materially from its assumptions.

that could cause differences include, but are not limited to:

our need for additional financing;

risks related to the failure to obtain FDA clearances or approvals and noncompliance with FDA regulations;

risks related to the failure to successfully market any of our products;

risks related to the timing and progress of clinical development

of our product candidates;

uncertainties of patent protection and litigation;

risks related to the failure

to obtain FDA clearances or approvals and noncompliance with FDA regulations;

risks related to the failure to successfully market

any of our products;

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

uncertainties

of patent protection and litigation;

uncertainties of government or third party payor reimbursement;

limited research and development efforts and dependence upon third parties;

limited research and development

efforts and dependence upon third parties;

and substantial competition.

Business Overview

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

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

Tonix’s development portfolio

is focused on central nervous system (“CNS”) disorders.

Our priority is to advance TNX-102 SL, a product candidate for the

management of fibromyalgia, for which New Drug Application (“NDA”) was submitted to the U.S.

Food and Drug Administration

(“FDA”) based on two statistically significant Phase 3 studies for the management of fibromyalgia and for which a Prescription

Drug User Fee Act (“PDUFA”) goal date of August 15, 2025 has been assigned for a decision on marketing authorization.

2025 the FDA guided that no Advisory Committee Meeting will be required for this NDA.

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 Investigational New Drug application (“IND”) at the University of North Carolina in the OASIS

study funded by the U.S.

Department of Defense (“DoD”).

We are also developing TNX-1300 double-mutant

cocaine esterase 200 mg, i.v.

solution product as an antidote for cocaine.

We discontinued enrollment and terminated the Phase

2 CATALYST study of TNX-1300 for the treatment of cocaine intoxication because enrollment in this emergency department-based study was

slower than projected.

We are evaluating new study designs and new endpoints for further development of TNX-1300.

study was not discontinued for safety or efficacy reasons.

Our 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.

infectious disease portfolio includes TNX-801, a vaccine in development to prevent mpox and smallpox, as well as TNX-4200, a small molecule

broad-spectrum antiviral agent targeting CD45 for the prevention or treatment of infections to improve the medical readiness of military

personnel in biological threat environments.

We have a contract with the DoD’s Defense Threat Reduction Agency (“DTRA”)

for up to $34 million over five years to develop TNX-4200.

We own and operate 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.

are a fully-integrated biotechnology company focused on developing, licensing and commercializing therapeutics to treat and prevent

human disease and alleviate suffering.

Our development portfolio is focused on central nervous system (“CNS”)

disorders, immunology, immuno-oncology and infectious diseases.

priority is to advance TNX-102 SL, a product candidate for the management of fibromyalgia, for which a Prescription Drug User

Fee Act (“PDUFA”) goal date of August 15, 2025 has been assigned for a decision on marketing authorization.

Drug Application (“NDA”) for TNX-102 SL was submitted to the U.S.

Food and Drug Administration (“FDA”) based on two statistically

significant Phase 3 studies for the management of fibromyalgia.

In March 2025 the FDA guided that no Advisory Committee Meeting

will be required for this NDA.

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

which indicates that the FDA views fibromyalgia as a serious condition that remains an unmet medical need.

TNX-102 SL is also

being developed to treat acute stress reaction and acute stress disorder (ASR/ASD) under a Physician-Initiated Investigational

New Drug application (“IND”) at the University of North Carolina in the OASIS study funded by the U.S.

of Defense (“DoD”).

The first patient was enrolled in the ASD/ASR study in May 2025 and topline results are expected

in the second half of 2026.

immunology and immune-oncology pipeline 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.

In February 2025, Tonix announced positive

topline results form a Phase 1 trial of TNX-1500 which supported proceeding to develop a Phase 2 trial for the prevention of kidney

transplant rejection.

TNX-1700 is a stabilized recombinant version of Trefoil Factor 2 (TFF2) and is in the preclinical stages

of development to treat gastric and colorectal cancers.

infectious disease portfolio includes TNX-801, a vaccine in development to prevent mpox and smallpox, as well as TNX-4200 , a

small molecule broad-spectrum antiviral agent targeting CD45 for the prevention or treatment of infections to improve the medical

readiness of military personnel in biological threat environments.

We have a contract with the DoD’s Defense Threat Reduction

Agency (“DTRA”) for up to $34 million over five years to develop TNX-4200.

We own and operate a state-of-the

art infectious disease research facility in Frederick, Md.

Medicines, our commercial subsidiary, markets Zembrace® SymTouch® (sumatriptan injection) 3 mg and Tosymra® (sumatriptan

nasal spray) 10 mg for the treatment of acute migraine with or without aura in adults.

All of our product candidates

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of future operations are difficult or impossible to make.

Since the acquisition of Zembrace and Tosymra on June 30, 2023, we are now reporting

product revenue and related costs.

Three Months Ended March 31, 2025 Compared

to Three Months Ended March 31, 2024

The following table sets forth our operating expenses

for the three months ended March 31, 2025 and 2024 (in thousands):

Three months ended

Three Months Ended June 30, 2025 Compared to

Three Months Ended June 30, 2024

The following table sets forth

our operating expenses for the quarter ended June 30, 2025 and 2024 (in thousands):

Three months ended June 30,

Product revenue, net

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Research and development

General and administrative

Selling, general and administrative

Asset impairment charges

Total operating expenses

Operating loss

Loss on change in fair value of warrant liabilities

Interest income, net

Other expense, net

recognized for the three months ended June 30, 2025 and 2024, was $2.0 million and $2.2 million, respectively.

The Company’s net product revenues are summarized

Three months ended June 30,

Zembrace Symtouch

Total product revenues

Cost of Sales .

of sales recognized for the three months ended June 30, 2025 and 2024, was $3.3 million and $3.4 million, respectively.

For the three

months ended June 30, 2025 and 2024, cost of sales includes write-downs related to Tosymra and Zembrace finished goods inventory of approximately

$2.3 million and $1.7 million, respectively, based on an assessment of inventory on hand and projected sales.

Research and Development

Research and development expenses for the three months ended June 30, 2025

were $10.8 million, an increase of $1.1 million, or 11%, from $9.7 million for the three months ended June 30, 2024.

This increase is

predominately due to increased clinical expenses of $1.3 million, non-clinal expenses of $1.6 million, manufacturing expenses of $0.8

million as a result of pipeline prioritization period over period, offset by a reduction in employee-related expenses of $0.6 million,

regulatory expenses of $1.2 million and office-related expenses of $0.9 million due to a reduction in expenditures.

The table below summarizes our

direct research and development expenses for our product candidates and development platform for the three months ended June 30, 2025,

Three Months Ended June 30,

(in thousands)

Research and development expenses:

Direct expenses – TNX – 102 SL

Direct expenses – TNX – 1500

Direct expenses – Other programs

Internal staffing, overhead and other

Total research & development

Our direct research and development

expenses consist principally of external costs for clinical, nonclinical and manufacturing, such as fees paid to contractors, consultants

and CROs in connection with our development work.

Included in “Internal Staffing, Overhead and Other” is overhead, supplies,

research and development employee costs (including stock option expenses), travel, regulatory and legal.

general and Administrative Expenses .

General and administrative expenses for the three months ended June 30, 2025

were $16.2 million, an increase of $8.7 million, or 116%, from $7.5 million incurred in the three months ended June 30, 2024.

increase is primarily due to an increase in sales and marketing expenses of $5.3 million, employee-related expenses of $1.3 million,

professional medical expenses of $0.9 million, and legal expenses of $0.4 million.

All increases are a result of the migraine assets program and potential

launch of TNX-102 SL.

Asset impairment charges .

We recognized a non-cash impairment charge of $48.8 million related to property and equipment, a non-cash impairment of $1.0 million related

to goodwill, and a non-cash impairment charge of $9.2 million related to intangible assets, which is reflected in asset impairment charges

in the consolidated statements of operations for the three months ended June 30, 2024.

The impairment of the Tosymra

and Zembrace inventory, intangibles and goodwill was driven by our delayed investment in the sales personnel required to drive growth

in the business as we were focusing our cash resources to further our efforts to bring TNX-102 SL through the approval process and to market.

However, we believe that the benefits and long-term value proposition of the 2023 acquisition of Tosymra and Zembrace remain, in that

we now have the infrastructure to be ready to manufacture and sell TNX-102 SL under an expedited timeline pending FDA approval for which

we expect an FDA decision in August 2025.

As a result of the foregoing, the net loss for the three months ended June 30, 2025 was $28.3 million, a decrease

of $50.5 million, or 64%, compared to a net loss of $78.8 million for the three months ended June 30, 2024.

Six Months Ended June 30, 2025 Compared to Six

Months Ended June 30, 2024

The following table sets forth

our operating expenses for the six months ended June 30, 2025 and 2024 (in thousands):

Six months ended June 30,

Product revenue, net

COSTS AND EXPENSES:

Cost of sales

Research and development

Selling, general and administrative

Asset impairment charges

Total operating expenses

Operating loss

Gain on change in fair value of warrant liabilities

Loss on extinguishment of debt

Other income (expense), net

Revenue recognized for the three months ended March 31, 2025 and 2024, was $2.4 million and $2.5 million, respectively.

Interest income, net

Other expense, net

recognized for the six months ended June 30, 2025 and 2024, was $4.4 million and $4.7 million, respectively.

The Company’s net product revenues are summarized below:

Three months ended

Six months ended June 30,

Zembrace Symtouch

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Cost of Sales .

Cost of sales recognized for the three months ended March 31, 2025 and 2024, was $0.9 million and $1.7 million, respectively.

The decrease is predominantly due to a step-up charge as part of the purchase price allocation.

We were amortizing monthly based

on units sold which ended in 2024.

Cost of sales recognized for the six months ended June 30, 2025, was $4.2 million, including write-downs related to Tosymra and Zembrace

finished goods inventory of approximately $2.3 million based on an assessment of inventory on hand and projected sales.

Cost of sales recognized for the six months ended June 30, 2024, was $5.0 million, including write-downs related to

Tosymra and Zembrace finished goods inventory of approximately $1.7 million based on an assessment of inventory on hand and projected

Research and Development

Research and development expenses for the three months ended March 31, 2025, were $7.4 million, a decrease of $5.5

million, or 43%, from $12.9 million for the three months ended March 31, 2024.

The decrease is predominately due to decreased clinical

expenses of $2.2 million, non-clinical expenses of $0.5 million, and manufacturing expenses of $0.2 million as a result of fewer trials

in the clinic and pipeline prioritization period over period, employee-related expenses of $1.5 million and building related expenses

of $1.1 million, due to a reduction in expenditures predominately as a result of the decommission of the ADC and reduction in force earlier

The table below summarizes

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

2025, and 2024.

Research and development expenses for the six months ended June 30, 2025 were $18.3 million, a decrease of $4.3

million, or 19%, from $22.6 million for the six months ended June 30, 2024.

This decrease is predominately due to decreased clinical expenses

of $0.9 million as a result of fewer trials in the clinic, employee-related expenses of $2.1, office-related expenses of $1.9 million

and regulatory of $1.3 million due to a reduction in expenditures offset by an increase in non-clinal expenses of $1.1 million and manufacturing

expenses of $0.6 million as a result of pipeline prioritization period over period.

The table below summarizes our

direct research and development expenses for our product candidates and development platform for the six months ended June 30, 2025, and

Six Months Ended June 30,

(in thousands)

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Direct expenses – TNX - 102 SL

Direct expenses – TNX - 601 ER

Direct expenses – TNX - 801

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Direct expenses – TNX - 1900

Direct expenses – TNX - 4200

Direct expenses – Other programs

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

and Administrative Expenses .

General and administrative expenses for the three months ended March 31, 2025, were

$10.1 million, an increase of $0.8 million, or 9%, from $9.3 million incurred in the three months ended March 31, 2024.

is primarily due to an increase in sales and marketing of $1.3 million, offset by a decrease in employee related expenses of $0.3

million, due to a reduction in expenditures predominately as a result of the reduction in force earlier in 2024.

a result of the forgoing, the net loss for the three months ended March 31, 2025, was $16.8 million, compared to a net loss of $14.9 million

for the three months ended March 31, 2024, an increase of $1.9 million or 13%.

The increase in loss is predominately due to the loss incurred on the extinguishment of the debt.

general and Administrative Expenses .

General and administrative expenses for the six months ended June 30, 2025 were

$26.3 million, an increase of $9.5 million, or 57%, from $16.8 million incurred in the six months ended June 30, 2024.

is primarily due to an increase in in sales and marketing of $6.7 million, employee-related expenses of $1.0 million, professional

expenses of $0.9 million, and legal expenses of $0.7 million.

All increases are a result of the migraine assets program and

potential launch of TNX-102 SL.

Asset impairment charges .

We recognized a non-cash impairment charge of $48.8 million related to property and equipment, a non-cash impairment of $1.0 million related

to goodwill, and a non-cash impairment charge of $9.2 million related to intangible assets, which is reflected in asset impairment charges

in the consolidated statements of operations for the three months ended June 30, 2024.

The impairment of the Tosymra

and Zembrace inventory, intangibles and goodwill was driven by our delayed investment in the sales personnel required to drive growth

in the business as we were focusing our cash resources to further our efforts to bring TNX-102 SL through the approval process and to market.

However, we believe that the benefits and long-term value proposition of the 2023 acquisition of Tosymra and Zembrace remain, in that

we now have the infrastructure to be ready to manufacture and sell TNX-102 SL under an expedited timeline pending FDA approval for which

we expect an FDA decision in August 2025.

As a result of the foregoing, the net loss for the six months ended June 30, 2025 was $45.1 million, a

decrease of $48.6 million, or 52%, compared to a net loss of $93.7 million for the six months ended June 30, 2024.

Asset Purchase Agreements

On June 23, 2023, we entered

into an asset purchase agreement with Upsher Smith for the acquisition of certain assets related to Zembrace and Tosymra (such businesses

collectively, the “Business”) and certain inventory related to the Business for an aggregate purchase price of approximately

$26.5 million, including certain deferred payments (such transaction, the “USL Acquisition”).

On June 23, 2023, we entered into

an asset purchase agreement with Upsher Smith for the acquisition of certain assets related to Zembrace and Tosymra (such businesses collectively,

the “Business”) and certain inventory related to the Business for an aggregate purchase price of approximately $26.5 million,

including certain deferred payments (such transaction, the “USL Acquisition”).

The transaction closed on June 30, 2023.

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and by 66.7% percent for Tosymra.

addition, we have assumed the obligation to pay an additional 3% royalty on net sales of Tosymra, plus an additional 3% if a patent containing

certain claims related to Tosymra issues in the U.S., for 15 years from the first commercial sale of Tosymra in the applicable country

or for as long as the manufacture, use or sale of Tosymra in such country is covered by a valid claim of a licensed patent, and up to

$15 million per Tosymra product on the achievement of sales milestones.

we have assumed the obligation to pay an additional 3% royalty on net sales of Tosymra, plus an additional 3% if a patent containing certain

claims related to Tosymra issues in the U.S., for 15 years from the first commercial sale of Tosymra in the applicable country or for

as long as the manufacture, use or sale of Tosymra in such country is covered by a valid claim of a licensed patent, and up to $15 million

per Tosymra product on the achievement of sales milestones.

Liquidity and Capital Resources

As of March 31, 2025, we had

working capital of $137.4 million, comprised primarily of cash and cash equivalents of $131.7 million, accounts receivable, net of $3.3

million, inventory, net of $8.1 million, and prepaid expenses and other of $6.4 million, offset by $4.2 million of accounts payable, $7.7

million of accrued expenses and other current liabilities, and $0.2 million of lease liabilities, short term.

A significant portion of

the accounts payable and accrued expenses are due to work performed in relation to our clinical programs, and accruals for gross to net deductions related to our commercial products.

The following table provides

a summary of operating, investing and financing cash flows for the quarters ended March 31, 2025, and 2024, respectively (in thousands):

of June 30, 2025, we had working capital of $124.5 million, comprised primarily of cash and cash equivalents of $125.3 million,

accounts receivable, net of $2.3 million, inventory of $6.0 million and prepaid expenses and other of $9.9 million, offset by

$7.8 million of accounts payable, $11.1 million of accrued expenses, and current lease liabilities of $0.2 million.

A significant

portion of the accounts payable and accrued expenses are due to work performed in relation to our clinical programs, accruals

for gross to net deductions related to our commercial products and potential product launch of TNX-102 SL.

The following table provides a

summary of operating, investing and financing cash flows for the six months ended June 30, 2025, and 2024, respectively (in thousands):

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

For the three months ended

March 31, 2025, and 2024, we used approximately $16.6 million and $17.6 million of cash in operating activities, respectively, which represents

cash outlays for research and development and general and administrative expenses in such periods.

The decrease in cash outlays principally

resulted from a decrease in research and development activities.

For the three months ended March 31, 2025, net cash provided by financing

activities were $49.5 million, predominately from the proceeds from the sale of our common stock of $62.2 million, offset by the repayment

of the term loan of $9.7 million and repurchase of our common stock of $3.0 million.

For the three months ended March 31, 2024, net cash

used by financing activities were $0.2 million, predominately from the repayment of the term loan.

Cash used by investing activities for

the three months ended March 31, 2025, and 2024, was $6,000 and $0.1 million respectively, related to the purchase of property and equipment.

The decrease is predominately due to less property and equipment purchases.

We believe that our cash resources at March 31, 2025 and the net proceeds

of $9.9 million that we raised from equity offerings in the second quarter of 2025 (See Note 17) will meet our planned operating and capital

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

We continue to face significant

challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently expected due

to changes we may make in our research and development spending plans.

These factors raise substantial doubt about our ability to continue

as a going concern for the one-year period from the date of filing of this Form 10-Q.

We must obtain additional funding through public

or private financing or collaborative arrangements with strategic partners to increase the funds available to fund operations.

additional funds, we may be forced to delay, scale back or eliminate some of our research and development activities, or other operations

and potentially delay product development to provide sufficient funds to continue our operations.

If any of these events occurs, our ability

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

Net cash provided by financing activities

For the six months ended June, 2025 and 2024, we used approximately $31.4

million and $27.5 million of cash in operating activities, respectively, which represents cash outlays for research and development and

general and administrative expenses in such periods.

The increase in cash outlays principally resulted from an increase in general and

administrative expenses.

For the six months ended June 30, 2025, net cash provided from financing activities was $60.5 million and $6.8

million, respectively predominately from the issuance of common stock.

Cash used in investing activities for the six months ended June

30, 2025, was $2.5 million related to the issuance of a note and purchase of property and equipment.

Cash used in investing activities

for the six months ended June 30, 2024, was $0.1 million related to the purchase of property and equipment.

We believe that our cash resources

at June 30, 2025, and the proceeds that we raised from equity offerings during the third quarter of 2025, will meet our operating and capital

expenditure requirements into the third quarter of 2026.

factors raise substantial doubt about our ability to continue as a going concern.

We continue 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, we may not be able to raise capital on terms acceptable

to us, or at all.

Without additional funds, we may be forced to delay, scale back or eliminate some or all of our 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, our ability to achieve development and commercialization goals will be

adversely affected and we may be forced to cease operations.

The financial statements do not include any adjustments that might

result from the outcome of this uncertainty.

Future Liquidity Requirements

We expect to incur losses

from operations for the near future.

We expect to incur increasing research and development expenses, including expenses related to additional

clinical trials and the build out of our research and development operations and manufacturing.

We will not have enough resources to meet

our operating requirements for the one-year period from filing date of this report.

We expect to incur losses from

operations for the near future.

We expect to increase our operating costs to align the Company’s capital and human resources with

its previously announced strategic prioritization of TNX-102 SL product candidate for the management of fibromyalgia.

We will not have

enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our future capital requirements

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

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

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

will depend on a number of factors, including the progress of our research and development of product candidates, the timing and outcome

of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims and

other intellectual property rights, the status of competitive products, the availability of financing and our success in developing markets

for our product candidates.

We will need to obtain additional

capital in order to fund future research and development activities.

Future financing may include the issuance of equity or debt securities,

obtaining credit facilities, or other financing mechanisms.

Even if we are able to raise the funds required, it is possible that we could

incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would

force us to seek alternative financing.

Furthermore, if we issue additional equity or debt securities, shareholders may experience additional

dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

If additional financing is

not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate our research and

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

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

2024 At-the-Market Offering

On July 30, 2024, we entered

into a Sales Agreement with AGP pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate

offering price of up to $250.0 million in the ATM.

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

Sales Agreement.

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

During the three months ended March 31, 2025, we sold approximately 2.7 million shares of common stock under the Sales Agreement, for

net proceeds of approximately $59.8 million.

Subsequent to March 31, 2025, we sold 0.6 million shares of common stock under the Sales

Agreement, for net proceeds of approximately $9.9 million.

capital in order to fund future research and development activities and future capital expenditures.

Future financing may include the

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

Even if we are able to raise the funds

required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience

unexpected cash requirements that would force us to seek alternative financing.

Furthermore, if we issue additional equity or debt securities,

shareholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those

of existing holders of our common stock.

If additional financing is not

available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate our research and development

programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners or others that may require

us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently.

2025 Lincoln Park Transaction

On June 11, 2025, we entered into

a purchase agreement (the “2025 Purchase Agreement”) and a registration rights agreement (the “2025 Registration Rights

Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).

Pursuant to the terms of the 2025 Purchase Agreement,

Lincoln Park has agreed to purchase from us up to $75,000,000 of our common stock (subject to certain limitations) from time

to time during the term of the 2025 Purchase Agreement.

Pursuant to the terms of the 2025 Registration Rights Agreement, we filed

with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln

Park under the 2025 Purchase Agreement.

Pursuant to the terms of the 2025

Purchase Agreement, at the time we signed the 2025 Purchase Agreement and the 2025 Registration Rights Agreement, we issued 48,708 shares

of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the 2025 Purchase Agreement.

The commitment shares were valued at $1.8 million and recorded as an addition

to equity for the issuance of the common stock and treated as other expense, net on the condensed consolidated statement of operations

under the 2025 Purchase Agreement.

No shares were sold during 2025 under the 2025 Purchase Agreement.

We evaluated the 2025 Purchase

Agreement under ASC 815-40 Derivatives and Hedging-Contracts on an Entity's Own Equity as it represents the

right to require Lincoln Park to purchase shares of common stock in the future, similar to a put option.

We concluded that

the 2025 Purchase Agreement represents a freestanding derivative instrument that does not qualify for equity classification

and therefore requires fair value accounting.

We analyzed the terms of the contract and concluded that the derivative instrument had insignificant

value as of June 30, 2025.

2025 At-the-Market Offerings

On June 11, 2025, we entered

into a Sales Agreement (the “2025 Sales Agreement”), with A.G.P./Alliance Global Partners (“AGP”) pursuant to

which we may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $150.0 million in sales.

AGP is the sales agent under the ATM and paid a 3% commission on each sale under the 2025 Sales Agreement.

Our common stock is sold at

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

No shares were sold during 2025 under the 2025 Sales

Subsequent to June 30, 2025, we sold 0.3 million shares of common stock under the Sales Agreement, for net proceeds of

approximately $12.3 million.

2024 At-the-Market Offerings

2024, we entered into a Sales Agreement (the “2024 Sales Agreement”), with AGP pursuant to which we may issue and sell,

from time to time, shares of common stock having an aggregate offering price of up to $250.0 million in sales.

AGP is the sales

agent under the ATM and paid a 3% commission on each sale under the 2024 Sales Agreement.

Our common stock is sold at prevailing

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

During the three and six months ended June 30, 2025, we

sold approximately 0.8 million and 3.5 million shares, respectively, of common stock under the 2024 Sales Agreement for net proceeds

of approximately $15.5 million and $75.4 million, respectively.

Subsequent to June 30, 2025, we sold 0.9 million shares of common

stock under the 2024 Sales Agreement, for net proceeds of approximately $37.5 million.

We can no longer sell shares under the 2024

Sales Agreement as we have reached the aggregate $250 million in sales.

July 2024 Financings

On July 9, 2024, we entered into

a securities purchase agreement with certain institutional and retail investors, pursuant to which we 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,

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

net proceeds of approximately $3.5 million, after deducting the underwriting discount and other offering expenses.

June 2024 Financings

June 12, 2024, we entered into a securities purchase agreement with certain investors, pursuant to which we sold 11,995 shares

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

The offering price per share of common

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

offering closed on June 13, 2024.

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

fees of approximately $0.3 million.

We received net proceeds of approximately $3.4 million, after deducting the underwriting discount

and other offering expenses.

June 27, 2024, we entered into a securities purchase agreement with certain institutional and retail investors, pursuant to which

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

The offering price

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

offering closed on June 28, 2024.

We incurred offering expenses of approximately $0.6 million, including placement agent fees

of approximately $0.3 million.

We received net proceeds of approximately $3.4 million, after deducting the underwriting discount

and other offering expenses.

March 2024 Financing

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1, 2024, if and only if the Minimum Price is below the then current exercise price.

Upon stockholder approval on May 22, 2024, 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;

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

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

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

termination date for Series 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 we to the Series C Warrant holder of our public announcement of the FDA’s acknowledgement and

acceptance of our NDA relating to TNX-102 SL in patients with Fibromyalgia;

the termination date for Series D Warrants to purchase up

to an aggregate of approximately 10,884 shares is April 1, 2029.

The other terms of the Existing Warrants will remain unchanged.

22, 2024, at the annual meeting of stockholders, our stockholders approved the proposal to amend the exercise prices of the Existing Warrants

to $1,056.00 per share and extend the expiration dates.

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.

We 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 our own stock, and as a result, did not meet the criteria for equity classification under

We 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.

We then reclassified the Existing Warrants

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

On May 22, 2024, the date our 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.

December 2023 Financing

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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

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 our stockholders of (i) a proposal to approve the filing of an amendment to our 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.

approval by our stockholders of (i) a proposal to approve the filing of an amendment to our 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,

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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.

We have 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, we determined that the authorized shares were sufficient to

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

The $30.0 million in gross

proceeds received by us 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,

The $30.0 million in gross proceeds

received by us 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.

the three and six months ended June 30, 2024, we recognized a change in fair value resulting in a loss of $0.9 million and gain

of $6.2 million, respectively, related to the liability-classified warrants prior to meeting the criteria for equity classification.

On January 25, 2024, the date

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

our stockholders approved the proposal to file an amendment to our 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.

Share Repurchase

In September 2024, the Board of Directors

approved a 2024 share repurchase program pursuant to which we 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.

During the three months ended March 31, 2025, the Company repurchased

250,000 of shares of its common stock outstanding under the 2024 share repurchase at prices ranging from $9.98 to $14.33 per share for

a gross aggregate cost of approximately $3.0 million.

Subsequent to March 31, 2025, the Company repurchased 150,000

of shares of common stock under a 2024 share repurchase program at prices ranging from $18.25 to $20.

per share for a gross aggregate cost of approximately $2.9 million.

The timing and amount of any shares repurchased will

be determined based on our evaluation of market conditions and other factors and the 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

Stock repurchases

In September 2024, the

Board of Directors approved a 2024 share repurchase program pursuant to which we 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.

During the three months June 30, 2025, we repurchased 150,000 of shares of common stock

outstanding under the 2024 share repurchase at prices ranging from $18.25 to $20.47 per share for a gross aggregate cost of approximately

$2.9 million.

The repurchased shares were immediately retired.

We repurchased the following capital

June 30, 2025

June 30, 2024

Total cost of repurchased shares (in thousands)

Shares repurchased

Weighted average price per share

During the six months

June 30, 2025, we repurchased 400,000 of shares of common stock outstanding under the 2024 share repurchase at prices ranging from $9.98

to $20.47 per share for a gross aggregate cost of approximately $5.9 million.

The repurchased shares were immediately retired.

We repurchased the following capital

June 30, 2025

June 30, 2024

Total cost of repurchased shares (in thousands)

Shares repurchased

Weighted average price per share

The timing and amount

of any shares repurchased will be determined based on our 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.

Stock Compensation

Stock Incentive Plans

On May 1, 2020, our stockholders

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Amended and Restated 2020 Stock Incentive Plan (“Amended and Restated 2020 Plan”).

Under the terms of the Amended

and Restated 2020 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights

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

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

In addition, the Amended and Restated 2020 Plan contains an “evergreen provision” providing for an annual increase

in the number of shares of our common stock available for issuance under the Amended and Restated 2020 Plan on January 1 of each year

for a period of ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030, in an amount equal to the difference

between (x) twenty percent (20%) of the total number of shares of common stock outstanding on December 31 st of the preceding

calendar year, and (y) the total number of shares of common stock reserved under the Amended and Restated 2020 Plan on December 31 st

of such preceding calendar year (including shares subject to outstanding awards, issued pursuant to awards or available for future

The Board of Directors determines the exercise price, vesting and expiration period of the grants under the Amended and Restated

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 March 31,

2025, there were 202,890 options available for future grants under the Amended and Restated 2020 Plan.

On May 8, 2025, the Company's stockholders approved the addition of 1,000,000 shares to the Company's Amended and Restated 2020 Plan.

Under the terms of the

Amended and Restated 2020 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation

rights (“SARs”), (4) 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).

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).

May 8, 2025, our stockholders approved the addition of 1,000,000 shares to the Company's Amended and Restated 2020 Plan.

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 June 30, 2025, there were 723,113 options available for

future grants under the Amended and Restated 2020 Plan.

The aggregate intrinsic value

in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than our

closing stock price at the respective dates.

weighted average fair value of options granted during the three and six months ended June 2025 was $19.63 per share and $12.59

per share, respectively.

The weighted average fair value of options granted during the three and six months ended June 2024 was

$506.04 per share and $1,015.52 per share, respectively.

We measure the fair value

of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions discussed below, and

the closing market price of the Company’s common stock on the date of the grant.

The fair value of the award is measured on the

One-third of most stock options granted pursuant to the Plans vest 12 months from the date of grant and 1/36 th

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

In addition, the Company issues options to directors

which vest over a one-year period.

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

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

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

Stock-based compensation expense related to awards is

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

The risk-free interest rate

is based on the yield of Daily U.S.

Treasury Yield Curve Rates with terms equal to the expected term of the options as of the grant date.

expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting Bulletin, and the expected

stock price volatility is based on the Company’ historical stock price volatility.

The weighted average fair

value of options granted for the three-month periods ended March 31, 2025 and 2024 was $7.55 and $1,056.00 per share, respectively.

the closing market price of our common stock on the date of the grant.

The fair value of the award is measured on the grant date.

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

also issue 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

Stock-based compensation expense

relating to options granted of $1.4 million, of which $1.0 million and $0.4 million, related to General and Administration and Research

and Development, respectively was recognized for the three months ended March 31, 2025.

and Development, respectively was recognized for the quarter ended June 30, 2025.

Stock-based compensation expense relating to options

granted of $1.1 million, of which $0.8 million and $0.3 million, related to General and Administration and Research and Development, respectively

was recognized for the quarter ended June 30, 2024.

Stock-based compensation expense

relating to options granted of $2.3 million, of which $1.6 million and $0.7 million, related to General and Administration and Research

and Development, respectively was recognized for the three months ended March 31, 2024.

As of March 31, 2025, we had

approximately $7.6 million of total unrecognized compensation cost related to non-vested awards granted under the Plans, which the Company

expects to recognize over a weighted average period of 2.26 years.

Employee Stock Purchase Plan

On May 5, 2023, our stockholders approved the Tonix Pharmaceuticals

Holdings Corp.

and Development, respectively was recognized for the six-month period ended June 30, 2025.

Stock-based compensation expense relating to

options granted of $2.8 million, of which $2.0 million and $0.8 million, related to General and Administration and Research and Development,

respectively was recognized for the six-month period ended June 30, 2024.

of June 30, 2025, we had approximately $15.5 million of total unrecognized compensation cost related to non-vested awards granted

under the Plans, which we expect to recognize over a weighted average period of 3.08 years.

Employee Stock Purchase Plans

On May 5, 2023, our stockholders approved

the Tonix Pharmaceuticals Holdings Corp.

2023 Employee Stock Purchase Plan.

(the “2023 ESPP”), which was replaced by the Tonix Pharmaceuticals Holdings

2025 Employee Stock Purchase Plan (the “2025 ESPP”, and together with the 2023 ESPP, the “ESPP Plans”),

which was approved by our stockholders on May 8, 2025.

The 2025 ESPP allows eligible employees to purchase up to an aggregate of 2,000,000 shares of the Company's common stock.

Under the 2025 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 2025 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 2025 ESPP, subject to the statutory limit under the Code.

(the “2023 ESPP”), which was replaced by the Tonix

Pharmaceuticals Holdings Corp.

2025 Employee Stock Purchase Plan (the “2025 ESPP”, and together with the 2023 ESPP, the “ESPP

Plans”), which was approved by our stockholders on May 8, 2025.

The 2025 ESPP allows eligible

employees to purchase up to an aggregate of 250 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 March 31, 2025, 159 shares were available for future sales under the 2023 ESPP.

employees to purchase up to an aggregate of 2,000,000 shares of our common stock.

Under the 2025 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 our common stock at the end of the offering period.

Each offering period under the 2025 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 2025 ESPP, subject to the statutory limit under the Code.

The 2023 ESPP allows eligible

employees to purchase up to an aggregate of 250 shares of our common stock.

Under the 2023 ESPP, on the first day of each offering period,

each employee eligible for that offering period has the option to enroll for that offering period, which allows the eligible employees

to purchase shares of our 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.

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 June 30, 2025, 159 shares were

available for future sales under the 2023 ESPP and 2,000,000 shares were available under the 2025 ESPP.

The ESPP Plans are considered

compensatory plans with the related compensation cost expensed over the six-month offering period.

For the three months ended March 31,

For the six months ended June 30, 2025,

and 2024, $0 and $27,000, respectively, was expensed.

In January 2024, 21 shares that were purchased as of December 31, 2023, under

the 2022 ESPP, were issued.

In January 2024, 21 shares that were purchased as of December 31, 2023, under the

2022 ESPP, were issued.

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.

Research and Development Contracts

We have entered into contracts

with various contract research organizations with outstanding commitments aggregating approximately $21.3 million at March 31, 2025 for

with various contract research organizations with outstanding commitments aggregating approximately $21.7 million at June 30, 2025 for

future work to be performed.

Operating leases

At March 31, 2025, future

minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in thousands):

At June 30, 2025, 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,

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Critical Accounting Policies and Estimates

Our discussion and analysis

of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance

Our discussion and analysis of

our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance

with accounting principles generally accepted in the United States.

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Research and Development.

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

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

The value ascribed to patents and

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

projects and had no alternative future uses.

We estimate our research and development accrued expenses.

Our clinical trial accrual process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants

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

The financial terms of

these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the

periods over which materials or services are provided to us under such contracts.

We account for trial expenses according to the progress

of the trial as measured by participant progression and the timing of various aspects of the trial.

We determine accrual estimates that

take into account discussions with applicable personnel and outside service providers as to the progress or state of completion of trials,

or the services completed.

During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ

from our estimates.

We make estimates of our accrued expenses as of each balance sheet date based on the facts and circumstances known

to us at that time.

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

organizations and other third-party vendors.

certain of our research and development efforts and expense the related costs as incurred, including the cost of manufacturing product

for testing, licensing fees and costs associated with planning and conducting clinical trials.

The value ascribed to patents and other

intellectual property acquired was expensed as research and development costs, as it related to particular research and development projects

and had no alternative future uses.

We estimate our research and development

accrued expenses.

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

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

The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows

that do not match the periods over which materials or services are provided to us under such contracts.

We account for trial expenses

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

accrual estimates that take into account discussions with applicable personnel and outside service providers as to the progress or state

of completion of trials, or the services completed.

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

if actual results differ from our estimates.

We make estimates of our accrued expenses as of each balance sheet date based on the facts

and circumstances known to us at that time.

Our clinical trial accruals and prepaid assets are dependent upon the timely and accurate

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

Stock-Based Compensation.

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

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

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

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the date the award is issued.

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

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded

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

of operations.

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

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

From time to time, certain

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

settle the equity-linked financial instruments in shares.

In such a case, the Company has adopted a sequencing approach under ASC 815-40,

Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the classification of its contracts at issuance and at each

subsequent reporting date.

If reclassification of contracts between equity and assets or liabilities is necessary, the Company first allocates

remaining authorized shares to equity on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest

issuance date receiving the first allocation of shares.

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

beginning with instruments with the latest maturity date first.

Derivative Instruments and Warrant

The Company evaluates all of its financial instruments, including issued warrants to purchase common stock under ASC 815

– Derivatives and Hedging, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

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

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

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

which is adjusted for instrument-specific terms as applicable.

From time to time, certain equity-linked

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

financial instruments in shares.

In such a case, the Company has adopted a sequencing approach under ASC 815-40, Derivatives and Hedging

- Contracts in Entity’s Own Equity to determine the classification of its contracts at issuance and at each subsequent reporting

If reclassification of contracts between equity and assets or liabilities is necessary, the Company first allocates remaining authorized

shares to equity on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest issuance date receiving

the first allocation of shares.

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

with the latest maturity date first.

Other than contractual obligations

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Recently Adopted Accounting Pronouncements

In November 2023, the FASB

issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their

effective tax rate reconciliations as well as expanded information on income taxes by jurisdiction.

The standard is effective for fiscal

years beginning after December 15, 2024 on a prospective basis.

The Company discloses its income tax rate reconciliation in its annual

consolidated financial statements only and does not expect the adoption to have a material impact on its consolidated financial statements.

In November 2023, the FASB issued

ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated information about their effective

tax rate reconciliations as well as expanded information on income taxes by jurisdiction.

The standard is effective for fiscal years beginning

after December 15, 2024 on a prospective basis.

The Company discloses its income tax rate reconciliation in its annual consolidated financial

statements only and does not expect the adoption to have a material impact on its consolidated financial statements.

Recently Issued Accounting Pronouncements

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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.

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

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.

ITEM 3 – QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

The Company is in the process of assessing the impact of ASU 2024-03

on our disclosures.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Not applicable.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis