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Item 8. Financial Statements and Supplementary Data

2026-03-12 compared with 2025-03-18 · 1158 added, 1438 removed, 290 unchanged (90% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TONIX PHARMACEUTICALS HOLDING CORP.

8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PHARMACEUTICALS HOLDING CORP.

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

Notes to consolidated financial statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

the Board of Directors and Stockholders of

1 unchanged sentence

on the Financial Statements

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

and Subsidiaries (the “Company”)

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

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

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

as of December 31, 2024 and 2023, and the consolidated results of their operations and their cash flows for each of the years then ended,

in conformity with accounting principles generally accepted in the United States of America.

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

As discussed in Note

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

doubt about its ability to continue as a going concern.

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

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

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

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

financial statements based on our audits.

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

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

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

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

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

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

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

As part of our audits,

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

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

We have audited the accompanying consolidated balance sheets of Tonix

Pharmaceuticals Holding Corp.

and Subsidiaries (the “Company”) as of December 31, 2025 and 2024, 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, 2025 and 2024, 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.

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.

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.

These financial statements are the responsibility of the Company’s

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.

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.

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.

Audit Matters

critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated

or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matters

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

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

and prepaid balance for clinical trial expenses

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

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

conducting clinical trials.

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

The critical audit matter communicated below is a matter arising from

the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 matter does not alter in any way our opinion on the financial

statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical

audit matter or on the accounts or disclosures to which it relates.

Accrued and prepaid balance for research and development expenses

As described in Note 2 to the financial statements, at each balance

sheet date the Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations,

and consultants in connection with performing pre-clinical and clinical work in preparation for and related to clinical trials.

accounts for research and development expenses based on services that have been performed on the Company’s behalf and estimating

the level of service performed and the associated costs incurred for the services when an invoice has not been received.

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

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

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

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

This in turn led to a high degree

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

to estimates made by management.

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

financial statements.

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

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

on the status of the clinical trials.

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

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

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

that were unpaid and prepaid at the balance sheet date.

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

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

trial services on behalf of the Company.

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

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

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

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

of long-lived assets

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

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

their net book value may not be recoverable.

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

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

Impairment, if any, is based on

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

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

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

assets due to a decline in revenues.

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

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

This in turn led

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

evidence relating to estimates made by management.

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

financial statements.

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

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

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

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

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

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

(iii) vouching a

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

and equipment near the impairment date;

and (iv) testing managements fair value estimates.

Testing over the fair value estimates involved

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

used by Management.

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

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

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

Testing over the fair value estimates involved the assistance

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

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

accrual for pre-clinical and clinical trial expenses of approximately $3.4 million is included in accrued expenses and other current liabilities

on the December 31, 2025 consolidated balance sheet.

The Company also recorded prepaid pre-clinical and clinical trial expenses of approximately

$3.5 million within prepaid expenses and other on the December 31, 2025 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 acritical accounting estimate by management.

We identified the accrual for research and development 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 financial statements.

We obtained an understanding of Management’s

process and evaluated the design of controls over developing its estimate of accrued and prepaid research and development expenses, including

the process of estimating the expenses incurred to date based on the status of the pre-clinical and clinical trial work.

Our procedures

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

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

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

We confirmed certain 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 pre-clinical and clinical trial services on behalf of the

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.

have served as the Company’s auditor since 2010.

TONIX PHARMACEUTICALS HOLDING CORP.

PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Par Value and Share Amounts)

and cash equivalents

receivable, net

expenses and other current assets

current assets

Cash and cash equivalents

Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Intangible assets, net

Operating lease right-to-use assets

Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

and equipment, net

lease right-to-use assets

non-current assets

AND STOCKHOLDERS’ EQUITY

expenses and other current liabilities

loan payable, short term

liability, short term

current liabilities

Accounts payable

Accrued expenses and other current liabilities

Term loan payable, short term

Lease liability, short term

Total current liabilities

Term loan payable, long term

Series C warrant liabilities

Series D warrant liabilities

Lease liability, long term

Total liabilities

Commitments (See Note 17)

Stockholders’ equity:

Preferred stock, $ 0.001 par value;

loan payable, long term

liability, long term

(See Note 17)

Stockholders’

stock, $ 0.001 par value;

5,000,000 shares authorized, 0 shares designated as of both December 31, 2025 and 2024;

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

Common stock, $ 0.001 par value;

issued and outstanding - as of both December 31, 2025 and 2024

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

Additional paid in capital

Accumulated deficit

Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

See the accompanying notes to the consolidated financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share and Per

Share Amounts)

Year ended December 31,

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

Other (expense) income, net

Net loss available to common stockholders

$ ( 130,036 )

$ ( 116,658 )

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

$ ( 14,720.25 )

Weighted average common shares outstanding, basic and diluted

See the accompanying notes to the consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(In Thousands)

Year ended December 31,

$ ( 130,036 )

$ ( 116,658 )

12,788,069 and 4,385,929 shares issued and outstanding as of December

31, 2025 and 2024, respectively and 5,883 shares to be issued as of December 31, 2025

paid in capital

other comprehensive loss

Foreign currency translation loss

stockholders’ equity

liabilities and stockholders’ equity

the accompanying notes to the consolidated financial statements

PHARMACEUTICALS HOLDING CORP.

STATEMENTS OF OPERATIONS

Thousands, Except Share and Per Share Amounts)

ended December 31,

AND EXPENSES:

and development

general and administrative

impairment charges

Operating Expenses

on change in fair value of warrant liabilities

on extinguishment of debt

Interest expense

loss available to common stockholders

loss to common stockholders per common share, basic and diluted

average common shares outstanding, basic and diluted

the accompanying notes to the consolidated financial statements

PHARMACEUTICALS HOLDING CORP.

STATEMENTS OF COMPREHENSIVE LOSS

ended December 31,

comprehensive loss:

$ ( 130,059 )

$ ( 116,723 )

See the accompanying notes to the consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In Thousands, Except Share and Per Share

currency translation loss

Comprehensive

Balance, December 31, 2023

$ ( 600,658 )

Issuance of common stock upon exercise of prefunded warrants

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

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

Fair value of warrants reclassified from liabilities to equity

Fair value of warrants classified from equity to liabilities

Employee stock purchase plan

Stock-based compensation

Foreign currency transaction gain

Balance, December 31, 2024

$ ( 730,694 )

See the accompanying notes to the consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(In Thousands, Except Share and Per Share

the accompanying notes to the consolidated financial statements

PHARMACEUTICALS HOLDING CORP.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Thousands, Except Share and Per Share Amounts)

Comprehensive

Balance, December 31, 2022

$ ( 470,038 )

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

Issuance of common stock under 2022 Purchase agreement

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

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

Issuance of common stock upon exercise of prefunded common warrants

Employee stock purchase plan

Stock-based compensation

Foreign currency transaction gain

Balance, December 31, 2023

$ ( 600,658 )

See the accompanying notes to the consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

Year ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 130,036 )

$ ( 116,658 )

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

Depreciation and amortization

Asset impairment charges

Stock-based compensation

Change in fair value of warrant liabilities

Offering costs allocated to warrant liabilities

Inventory write-off

Amortization of debt discounts

Gain on sale of property and equipment

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other

Accounts payable

Operating lease liabilities and ROU asset, net

Accrued expenses and other current liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of business

Disposal of property and equipment

Purchase of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Deferred payment related to purchase of business

Proceeds from ESPP

Repayments of term loan

Redemption of convertible preferred stock

Proceeds from debt financing

Proceeds, net of $ 7,238 and $ 2,800 expenses, from sale of common stock and warrants

Proceeds from allocated warrant liabilities

Repurchase of common stock

Net cash provided by financing activities

Effect of currency rate change on cash

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

Cash, cash equivalents and restricted cash beginning of the period

Cash, cash equivalents and restricted cash end of period

Supplemental disclosures of cash flow information:

Interest paid

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

Net ATM proceeds received after year-end

Debt financing costs included in accrued liabilities and other current liabilities

Issuance costs included in accrued liabilities and other current liabilities

New operating leases and lease amendments

See the accompanying notes to consolidated

financial statements

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS

Tonix Pharmaceuticals

Holding Corp.

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

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

and vaccines for public health challenges.

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

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

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

marketing authorization.

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

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

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

Department of Defense (DoD).

Tonix’s CNS portfolio includes TNX-1300 (cocaine

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

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

Tonix’s immunology development portfolio consists

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

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

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

Tonix recently

announced a contract with the U.S.

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

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

readiness of military personnel in biological threat environments.

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

facility in Frederick, Md.

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

and Tosymra® (sumatriptan nasal spray) 10 mg for the treatment of acute migraine with or without aura in adults.

The consolidated financial

statements include the accounts of Tonix Pharmaceuticals Holding Corp.

and its wholly owned subsidiaries, Tonix Sub, Krele LLC,

Tonix Pharmaceuticals (Canada), Inc., Tonix Medicines, Inc., Jenner Institute LLC, Tonix R&D Center LLC, Tonix Pharma Holdings

Limited and Tonix Pharma Limited (collectively, the “Company” or “Tonix”).

All intercompany balances and

transactions have been eliminated in consolidation.

Going Concern

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.

December 31, 2024

of common stock under Share Repurchase Program, including transactional expenses of $ 30

of commitment shares

of common stock under At-the-market offering, net of transactional expenses of $ 7,174

of common stock and warrants under registered direct Financing, net of transactional expenses of $ 1,488

currency transaction gain

December 31, 2025

the accompanying notes to the consolidated financial statements

PHARMACEUTICALS HOLDING CORP.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Thousands, Except Share and Per Share Amounts)

Comprehensive

December 31, 2023

of common stock upon exercise of prefunded warrants

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

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

value of warrants reclassified from liabilities to equity

value of warrants classified from equity to liabilities

stock purchase plan

currency transaction gain

December 31, 2024

the accompanying notes to the consolidated financial statements

PHARMACEUTICALS HOLDING CORP.

STATEMENTS OF CASH FLOWS

ended December 31,

FLOWS FROM OPERATING ACTIVITIES:

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

and amortization

Bad debt expense

impairment charges

in fair value of warrant liabilities

on extinguishment of debt

of debt discounts

costs of derivative instrument

in operating assets and liabilities:

expenses and other

lease liabilities and ROU asset, net

expenses and other current liabilities

cash used in operating activities

FLOWS FROM INVESTING ACTIVITIES:

Proceeds from note

of property and equipment

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES:

payment related to purchase of business

net of $ 8,750 and $ 7,238 expenses, from sale of common stock and warrants, respectively

of common stock, net of $ 30 expenses

cash provided by financing activities

of currency rate change on cash

increase in cash, cash equivalents and restricted cash

cash equivalents and restricted cash beginning of the period

cash equivalents and restricted cash end of period

disclosures of cash flow information:

Non cash investing and financing activity:

of property and equipment included in accounts payable and accrued liabilities

ATM proceeds received after year-end

costs from derivative instruments

operating leases and lease amendments

the accompanying notes to consolidated financial statement

PHARMACEUTICALS HOLDING CORP.

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

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.

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.

Pharmaceuticals (“Tonix” or the “Company”) is a fully-integrated biopharmaceutical company commercializing

and developing innovative therapies for central nervous system (“CNS”) disorders, immunology, infectious diseases,

and rare diseases.

Our portfolio consists of both commercial and development-stage programs.

August 2025, Tonix received approval from the U.S.

Food and Drug Administration (“FDA”) for TONMYA™ (cyclobenzaprine

HCl sublingual tablets) for the treatment of fibromyalgia.

TONMYA, Tonix’s first internally developed product to become

FDA approved, was commercially launched by the Company in the United States on November 17, 2025.

TONMYA is the first new medicine

for fibromyalgia in more than 15 years and is a centrally acting, non-opioid analgesic designed for bedtime administration and

long-term use.

The approval and launch of TONMYA marked major milestones in Tonix’s evolution.

The Company holds worldwide

commercialization rights to TONMYA.

In addition to TONMYA, Tonix markets two FDA-approved prescription products for the treatment

of acute migraine:

Zembrace® SymTouch® (sumatriptan injection) and Tosymra® (sumatriptan nasal spray).

commercial platform includes sales, marketing, market access, distribution, and patient support capabilities.

Tonix maintains a diversified development pipeline generated through internal

discovery, in-licensing, acquisitions, and collaborations with academic and non-profit institutions.

The Company’s pipeline addresses

conditions that span central nervous system (“CNS”), infectious disease, immunology, and rare disease, with multiple programs

in clinical and preclinical development.

The proprietary cyclobenzaprine HCl sublingual tablet formulation contained in TONMYA is referred

to as “TNX-102 SL” outside of the fibromyalgia indication.

Tonix is exploring the utility of TNX-102 SL (sublingual cyclobenzaprine)

in Phase 2 clinical trials for major depressive disorder and acute stress disorder.

TNX-102 SL is being developed to treat acute stress

reaction and acute stress disorder under an Investigator-Initiated investigational new drug application (“IND”) at the University

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

Department of Defense (“DoD”).

A Phase 2 study of TNX-102

SL for major depressive disorder is expected to commence mid-2026 under a Tonix IND that has been cleared by FDA.

Tonix’s clinical stage infectious

disease portfolio includes monoclonal antibody TNX-4800 (anti-OspA from Borrelia burgdorferi ) for seasonal prevention of Lyme disease,

for which initiation of a Phase 2 field study is planned for the first half of 2027 and a Phase 2 human challenge study is planned for

2028, pending FDA clearances.

Tonix’s clinical-stage immunology

development portfolio consists of biologics to address organ transplant rejection, autoimmunity and cancer, including TNX-1500, which

is a Phase 2- ready 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.

Another CNS candidate in clinical

development is TNX-1300 (double-mutant cocaine esterase), which is in Phase 2 for the treatment of cocaine intoxication.

been granted Breakthrough Therapy designation by the FDA.

Tonix’s clinical-stage rare

disease portfolio includes TNX-2900, intranasal oxytocin potentiated with magnesium, in development for Prader-Willi syndrome and expected

to start a Phase 2 study in the first quarter of 2027.

Tonix’s pre-clinical, pre-IND

infectious disease portfolio includes TNX-801 (horsepox, live virus vaccine), as vaccine for mpox and smallpox.

We own a facility in Dartmouth,

MA that was purpose-built to manufacture TNX-801 under Good Manufacturing Practices (GMP) to support clinical development and potential

commercialization.

Tonix’s pre-IND infectious

disease portfolio also includes TNX-4200, which is a small molecule broad-spectrum antiviral agent targeting CD45 for the prevention or

treatment of high lethality infections to improve the medical readiness of military personnel in biological threat environments.

program is supported by a $34 million contract over five years from the U.S.

DoD’s Defense Threat Reduction Agency (DTRA).

owns and operates a state-of-the art research facility in Frederick, Maryland that supports this research.

Tonix’s pre-IND pre-clinical

immunology portfolio includes TNX-1700, which is a fusion protein of TFF2 and albumin is in preclinical development for the treatment

of gastric cancer in combination with PD-1 blockade in collaboration with Columbia University.

Tonix’s pre-clinical, pre-IND

CNS portfolio also includes TNX-4900, a highly selective small-molecule Sigma-1 receptor (“S1R”) antagonist for neuropathic

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, 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

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, 2025,

the Company had working capital of approximately $ 198.0 million.

At December 31, 2025, the Company had an accumulated deficit

of approximately $ 854.7 million.

The Company held unrestricted cash and cash equivalents of approximately $ 207.6 million as of

December 31, 2025.

The Company believes that its cash resources at December 31, 2025, and

the net proceeds of $ 8.6 million that it received from the sale of equity in the first quarter of 2026 (See Note 19), will meet its planned

operating and capital expenditure requirements into the first quarter of 2027.

These factors raise substantial doubt about the Company’s ability

to continue as a going concern.

Company continues to face significant challenges and uncertainties and must successfully launch TONMYA and 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.

the successful product launch of TONMYA and obtaining additional funds, the Company 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.

2 – SIGNIFICANT ACCOUNTING POLICIES

February 5, 2025, the Company effected a 1-for-100 reverse stock split of its issued and outstanding shares of common stock.

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.

and uncertainties

Company’s primary efforts are devoted to commercializing its approved products and 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.

the Company currently generates revenue from the sale of its commercial products, TONMYA, Zembrace SymTouch and Tosymra.

There is no assurance

that the Company will be able to generate sufficient cash flow to fund operations from the sale of 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 in development will be approved or commercially viable.

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 revenues and expenses during the reporting

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

Clarifying the Definition of a Business.

Business combinations are accounted for using the acquisition method, whereby

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

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

Transaction costs other

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

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

Segment Information and Concentrations

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.

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, and the percent of completion of research and development

Information and Concentrations

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

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

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,

The CODM manages its operations

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

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 statements of operations.

The significant expenses regularly reviewed by the CODM are consistent

with those reported on the Company’s consolidated statements 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.

Company has three products that accounted for $ 13.1 million, representing 100 % of total revenues during the year ended December

The Company had two products that accounted for $ 10.1 million, representing 100 % of total revenues during the year ended

December 31, 2024.

of December 31, 2025, accounts receivable from three customers accounted for 34 %, 29 %, and 28 % of total accounts receivable.

of December 31, 2024, accounts receivable from four customers accounted for 30 %, 26 %, 25 %, and 9 % of accounts receivable.

the year ended December 31, 2025, revenues from five customers accounted for 24 %, 22 %, 21 %, 19 % and 12 % of net product revenues,

respectively.

PHARMACEUTICALS HOLDING CORP.

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:

(in thousands)

For the year ended December 31, 2024, revenues from five customers accounted for 24 %, 23 %, 22 %, 16 % and 10 % of net

product revenues, respectively.

Cash Equivalents and Restricted Cash

Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original

maturity of three months or less when purchased.

At December 31, 2025, and 2024, cash equivalents, which consisted of money market

funds and other cash equivalents, amounted to approximately $ 148.7 million and $ 24,000 , respectively.

Restricted cash, which is

included in Other non-current assets on the consolidated balance sheets, at December 31, 2025, of approximately $ 2.2 million collateralizes

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

(see Note 16) and restricted cash held by vendors in escrow accounts for patient support services.

Restricted cash at December

31, 2024 of approximately $ 0.9 million, collateralizes a letter of credit issued in connection with the lease of office space

in Chatham, New Jersey and New York, New York, and restricted cash held by vendors in escrow accounts for patient support services.

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:

Cash and cash equivalents

Restricted cash

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.

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

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

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

to the 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.

Receivable, net

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.

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.

of December 31, 2025 and 2024, the Company had $ 31,000 and $ 0 , respectively, as an allowance for expected credit losses.

An allowance for

expected 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

instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, and receivables.

attempt to minimize the risks related to cash and cash equivalents by investing in money market accounts, and we have established

guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories are recorded

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

Acquired inventory was

valued at estimated selling price less a reasonable margin.

The Company periodically reviews the composition of inventory in order

to identify excess, obsolete, slow-moving or otherwise non-saleable items taking into account anticipated future sales compared

with quantities on hand, and the remaining shelf life of goods on hand.

If non-saleable items are observed and there are no alternate

uses for the inventory, the Company records a write-down to net realizable value in the period that the decline in value is first

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

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

sales prior to the respective expiration dates.

Although the Company makes every effort to ensure the accuracy of forecasts of

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

inventories and reported operating results.

The Company did not

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

Property and equipment

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.

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.

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.

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

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, 2025 and 2024, the Company recorded write-downs related

to Tosymra and Zembrace finished goods inventory of approximately $ 0.7 million and $ 1.5 million, respectively, based on an assessment

of inventory on hand and projected sales.

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.

and equipment

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

Depreciation and amortization expense for the year ended December 31, 2025, and 2024 was $ 1.9 million and $ 2.9 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.

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

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

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

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill represents

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

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

that the carrying amount of goodwill may be impaired.

The Company previously recognized goodwill in connection with the USL Acquisition

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

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

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

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

The Company determines

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

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

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

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

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

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

The transaction

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

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

contractual payment terms are typically 30 to 90 days .

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

Finite-lived intangible assets consisted 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 were amortized using the straight-line method over the estimated useful lives of the respective

Amortization expense the year ended December 31, 2024, was $ 0.5 million.

The Company recorded a full impairment of its

developed technology assets during the second quarter of 2024.

Therefore, there is no amortization for the year ended December

testing of long-lived assets

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.

For the year ended December 31,

2025, the Company concluded that no impairment existed.

the second quarter of 2024, the Company identified certain triggering events related to its decommissioned Advance Development

Center in Dartmouth, Massachusetts (“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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Revenues from product

sales, net of gross-to-net deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue

recognized is not probable of occurring and when the uncertainty associated with gross-to-net deductions is subsequently resolved.

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.

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

cash flow analysis.

As the carrying value of the asset group significantly exceeded its fair value, the Company recorded a full

non-cash impairment charge of $ 9.2 million, 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.

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.

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.

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.

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

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,

Our contractual payment terms are typically 30 to 90 days .

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

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

handling activities are considered to be fulfillment activities and not a separate performance obligation.

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

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

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:

- 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.

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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 participates in certain government and specific sales rebate programs which provides discounted prescription

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

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

Managed Care Rebates

are processed in the quarter following the quarter in which they are earned.

The managed care reporting entity submits utilization

data after the end of the quarter and the Company processes the payment in accordance with contract terms.

All rebates earned

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

Medicaid and State

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

The Company monitors Medicaid legislative

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

The accrual of State Agency

reserves is based on historical payment rates.

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

the rebate is paid.

Tri-Care represents

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

The Tri-Care program supplements health care resources of the US military with civilian health care professionals for greater

access and quality healthcare coverage.

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

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.

PHARMACEUTICALS HOLDING CORP.

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.

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

This includes copay buy down and eVoucher

Product Returns

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

The customer’s right

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

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

The Company estimates

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

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

The Company estimates products returns as a percentage of sales

to its customers.

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

inventory remaining in the distribution channel.

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

returns may differ from original estimates.

Research and Development Costs

The Company outsources

certain of its research and development efforts and expenses these costs as incurred, including the cost of manufacturing products

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

The value ascribed to

patents and other intellectual property acquired has been expensed as research and development costs, as such property is related

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

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.

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

The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations

and other third-party vendors.

Government Grants

From time to time,

the Company may enter into arrangements with governmental entities for the purpose of obtaining funding for research and development

The Company is reimbursed for costs incurred that are associated with specified research and development activities

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

GAAP does not have specific

accounting standards covering government grants to business entities.

The Company applies International Accounting Standards 20

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

government grants.

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

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

After initial recognition, government grants received are recognized in earnings

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

The Company classifies government

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

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

The Company also applies

the disclosure requirements of ASC 832, Government Assistance.

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.

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

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

This includes copay

buy down and eVoucher programs.

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

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.

For Zembrace and Tosymra, the Company

estimates product 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.

For TONMYA, until sufficient

historical information is available, the rate is based on the industry average for a similar product.

Adjustments are made to the

current provision for returns when data suggests product returns may differ from original estimates.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

In August 2022, the

Company received a Cooperative Agreement grant from the National Institute on Drug Abuse (“NIDA”), part of the National

Institutes of Health, to support the development of its TNX-1300 product candidate for the treatment of cocaine intoxication.

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

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

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

During the year

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

In June 2024, the Company

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

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

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

threat environments.

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

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

Funding under the DTRA grant is earned and recognized

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

costs and a fixed fee.

and Development Costs

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.

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.

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.

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.

and Promotion Costs

and promotion costs are expensed as incurred.

The Company recorded advertising and promotion expenses of approximately

$ 24.6 million and $ 0.2 million, respectively, for the years ended December 31, 2025, and 2024.

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.

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.

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.

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, 2025, the Company recorded $ 0.6 million in funding as a reduction of related

research and development expense.

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.

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, 2025, $ 3.0 million was recognized in grant income

related to the DTRA grant.

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

1 unchanged sentence

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.

Compensation .

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Currency Translation

of the Company’s Canadian subsidiary, Tonix Pharmaceuticals (Canada), Inc., are conducted in local currency, which represents

its functional currency.

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

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

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.

Deferred income tax

assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards

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

2 unchanged sentences

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.

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, 2025, 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.

July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States.

The OBBBA includes significant

provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, and the restoration of

favorable tax treatment for certain business provisions.

The legislation has multiple effective dates, with certain provisions

effective in 2025 and others implemented through 2027.

The Company assessed the changes and concluded that they were not material.

Instruments and Warrant Liabilities

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

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

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

of operations.

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

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

time to time, certain equity-linked instruments may be classified as derivative liabilities due to the 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.

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.

PHARMACEUTICALS HOLDING CORP.

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

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

All warrants (See Note

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

of Directors, on the Company’s common stock.

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

with common stock in earnings of the Company.

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

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

to dividends declared and participation rights in undistributed earnings.

No income was allocated to the warrants for the year

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

Potentially dilutive

securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2024 and 2023, are as follows:

Warrants to purchase common stock

Options to purchase common stock

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

is no limit on the number of times a contract may be reclassified.

During the year ended December 31, 2025, the Company recorded

$ 1.8 million in issuance costs related to the equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”).

These costs were expensed, and are included in other expense, net on the consolidated statement of operations, as the equity line

qualified as a derivative instrument.

Company evaluated the contract that includes the right to require Lincoln Park to purchase shares of Common Stock in the future

(“purchased put right”) considering the guidance in ASC 815-40, and concluded that it is an equity-linked contract

that does not qualify for equity classification, and therefore requires fair value accounting as a derivative asset (liability).

The Company has analyzed the terms of the purchased put right and has concluded that it had insignificant value as of December

Reclassifications

prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on

the reported results of operations.

computation of basic and diluted loss per share for the year ended December 31, 2025 and 2024 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.

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, 2025, and 2024, as results of operations were a loss for the periods.

dilutive securities excluded from the computation of basic and diluted net loss per share, as of December 31, 2025 and 2024, are

Warrants to purchase common

stock (excluding prefunded warrants)

Options to purchase

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.

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.

Adopted Accounting Pronouncements

December 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.

discloses its income tax rate reconciliation in its annual consolidated financial statements only.

The Company adopted the ASU on

January 1, 2025, and the impact of the adoption was enhanced disclosure in Note 18.

Issued Accounting Pronouncements

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.

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:

(in thousands)

The Company is in the process of assessing the impact of ASU 2024-03 on our financial statements.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

December 2025, the FASB issued ASU 2025-10, Government grants – Accounting for Government grants by Business entities,

that includes requirements for recognition of government grants in a Company’s financial statements as well as disclosure

requirements, including the nature of the government grant received, the accounting policies used to account for the grant, and

significant terms and conditions of the grant.

The guidance is effective for 2029 interim and annual reporting on a modified prospective,

modified retrospective or retrospective approach.

Early adoption is permitted as of the beginning of an annual reporting period.

The Company is currently evaluating the impact of adoption on its consolidated financial statements.

3 – INVENTORY

components of inventory consisted of the following (in thousands):

Raw Materials

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Total Inventory

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – PROPERTY AND EQUIPMENT,

Property and equipment,

net consisted of the following (in thousands):

(in thousands)

4 – PROPERTY AND EQUIPMENT, NET

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

Property and equipment, net:

Land improvements

Office furniture and equipment

Office furniture

and equipment

Laboratory equipment

Leasehold improvements

Property and equipment gross

Accumulated depreciation and amortization

Property and equipment, net

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:

(in thousands)

Balance at December 31, 2023

Impairment of goodwill

Balance at December 31, 2024

The Company completed

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

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

ended December 31, 2024.

The following table

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

(in thousands)

Property and equipment,

5 – GOODWILL AND INTANGIBLE ASSETS

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

Intangible assets subject to amortization

Developed technology

Impairment charge

Accumulated amortization

1 unchanged sentence

Internet domain rights

Total intangible assets, net

Total intangible

the year ended December 31, 2024, the Company recorded amortization of $ 0.5 million.

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

As a result of certain

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

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

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

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

NOTE 6 – FAIR VALUE MEASUREMENTS

6 – FAIR VALUE MEASUREMENTS

affect the Company’s accounting for certain of its financial assets.

Fair value is defined as the price that would be received

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

and is measured according to a hierarchy that includes:

Observable inputs, such as quoted prices in active markets.

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments.

This category includes U.S.

value measurements affect the Company’s accounting for certain of its financial assets.

Fair value is defined as the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants

at the measurement date and is measured according to a hierarchy that includes:

Observable inputs,

such as quoted prices in active markets.

Inputs, other than

quoted prices in active markets, that are observable either directly or indirectly.

Level 2 assets and liabilities include

debt securities with quoted market prices that are traded less frequently than exchange-traded instruments.

This category

includes U.S.

government agency-backed debt securities and corporate-debt securities.

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

As of December 31,

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

The Company uses the

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

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

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

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

price scenarios, as applicable.

The following table

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

ended December 31, 2024, and 2023:

December 31, 2024

December 31, 2023

Common stock price

608.00 - 988.80

Risk-free rate

4.01 % - 5.37 %

3.84 % - 4.23 %

Expected term (in years)

Expected volatility

105.00 % - 120.00 %

Discount for lack of marketability

Unobservable inputs

in which there is little or no market data.

of December 31, 2025, and 2024, the Company used Level 1 quoted prices in active markets to value cash equivalents of $ 148.7

million and $ 24,000 ,

respectively.

The Company did not have any material Level 2 or Level 3 assets or liabilities as of December 31, 2025.

received stockholder approval to increase the number of authorized shares on January 25, 2024, at which time previous liability

classified Series D Warrants and the Series C Warrants met all requirements for equity classification, and, as a result, the Company

reclassified them to equity as of January 25, 2024.

Company used the Black-Scholes option pricing model to estimate the fair value of the Series D Warrants and the Series C Warrants

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

For periods prior

to the receipt of stockholder approval, the fair value was then adjusted by applying a discount for lack of marketability (“DLOM”)

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

to become exercisable in accordance with Nasdaq Listing Rule 5635.

Additionally, between April 1, 2024 and May 22, 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

entered into upon the closing of an equity financing on April 1, 2024, which provided for adjustments to the exercise prices of

the Existing Warrants, contingent on approval by the Company’s stockholders of a proposal to allow the Existing Warrants

to become exercisable in accordance with Nasdaq Listing Rule 5635.

The Company determined that the exercise price adjustment provision

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

and therefore were reclassified to liabilities at post-modification fair value on April 1, 2024.

After the Company received stockholder

approval on May 22, 2024, thereby reducing the exercise prices of each of the Existing Warrants to $ 1,056.00 per share, the Existing

Warrants met all requirements for equity classification and the Company reclassified them to equity as of May 22, 2024.

the fair value of the Existing Warrants on the reclassification dates, the Company used a Black-Scholes option pricing model,

probability weighted for different scenarios as applicable.

following table summarizes the range of significant assumptions used in determining the fair value of liability-classified warrants

on the respective reclassification dates for the year ended December 31, 2024:

term (in years)

Discount for lack

of marketability

the year ended December 31, 2024, the Company recognized a change in fair value resulting in a gain of $ 6.2 million, respectively,

related to the liability-classified warrants prior to meeting the criteria for equity classification.

were no material liability-classified warrants measured at fair value on a recurring basis using significant unobservable inputs

(Level 3) for the year ended December 31, 2025.

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

separate component in the consolidated statement of operations.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of

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

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

Warrant liabilities

Balance at December 31, 2023

Fair value - mark to market adjustment

Warrants reclassified from liabilities to equity

Warrants reclassified from equity to liabilities

Fair value - mark to market adjustment

Warrants reclassified from liabilities to equity

Balance at December 31, 2024

A reconciliation of

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

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

Balance at December 31, 2022

Warrant liabilities issued

Fair value - mark to market adjustment

Balance at December 31, 2023

Changes in the fair

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

of operations.

NOTE 7 – OTHER BALANCE SHEET INFORMATION

Components of selected

captions in the consolidated balance sheets consist of:

7 – OTHER BALANCE SHEET INFORMATION

of selected captions in the consolidated balance sheets consist of:

Prepaid expenses and other current assets:

(in thousands)

Contract-related

Prepaid Inventory

Government grants

1 unchanged sentence

Non-trade receivables

Debt interest and fees

Debt interest and

Prescription drug user fee

Professional fees

Accrued expenses and other current liabilities:

Contract-related

Upsher Smith obligation

Compensation and compensation-related

Gross-to-net deductions

Professional fees and other

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – DEBT FINANCING

Long-term debt consists of the following:

December 31, 2024

December 31, 2023

and compensation-related

fees and other

8 – DEBT FINANCING

debt consists of the following:

current portion

Total long-term debt

unamortized debt discount and deferred financing costs

Total long-term debt, net

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

debt discount and deferred financing costs

Total long-term

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 was amortized over the term of the debt as an adjustment

to the effective interest rate on the outstanding borrowings.

Borrowings under the Term Loan carried 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 was payable

monthly in arrears commencing in December 2023.

on March 8, 2024 and continuing monthly through the Maturity Date, the outstanding principal was due and payable in monthly installments

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

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

as of the date of payment.

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

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

The Loan Agreement

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

The Loan Agreement contains

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

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

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

transactions, and effect a consolidation or merger.

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

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

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

The Term Loan is secured by first

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

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

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.

the Company paid 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 was amortized over the term of the debt as

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

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

Term Loan was 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.

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.

In connection with the pay-off of the loan, the Company

incurred a loss on extinguishment of the debt amounting to $ 2.1

million during the year ended December 31, 2025.

PHARMACEUTICALS HOLDING CORP.

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

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

9 – STOCKHOLDERS’ EQUITY

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 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

1 unchanged sentence

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:

10 – REVENUES

Disaggregation

of Net Revenues

Company’s net product revenues are summarized below:

Zembrace Symtouch

Total product revenues

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

Our provision for gross-to-net

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

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

Our provision for gross-to-net allowances was $ 2.9 million at December

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

accrued expenses.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH

On June 30, 2023, the

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

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

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

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

On June 30, 2023, in

connection with the USL Acquisition, the Company and Upsher Smith entered into a Transition Services Agreement (the “Transition

Services Agreement”), pursuant to which Upsher Smith 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

Total product

All sales were generated

in the United States.

Sales Accruals

record gross-to-net sales accruals for chargebacks, rebates, sales and other discounts, and product returns, which are all customary

to the pharmaceutical industry.

provision for gross-to-net allowances was $ 8.9 million at December 31, 2025, $ 1.0 million of which was recorded as a reduction

to accounts receivable and $ 7.9 million recorded as a component of accrued expenses.

Our provision for gross-to-net allowances

was $ 4.5 million at December 31, 2024, of which $ 0.8 million was recorded as a reduction to accounts receivable and $ 3.7 million

was recorded as a component of accrued expenses.

11 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH

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.

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.

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

9 % for net sales

of $ 75 to $ 100 million;

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

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

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

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;

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.

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

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

Closing cash consideration

Inventory adjustment payment liability

Deferred payment liability

Purchase price to be allocated

The USL Acquisition

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

Combinations and ASU No.

2017-01, Business Combinations (Topic 805):

Clarifying the Definition of a Business.

The tangible and

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

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

The following table

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

Prepaid expenses and other

Intangible assets, net

Fair value of assets acquired

The acquired inventory

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

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):

Developed technology - Tosymra

Developed technology - Zembrace

The developed technology

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

and trademarks and trade names associated with the technology.

The developed technology intangible assets were valued as composite

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

technology, and are assumed to have similar useful lives.

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

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

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

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

The fair values assigned

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

Actual results may

differ from these estimates and assumptions.

Due to a sustained

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

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

The Company determined that the carrying

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

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

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

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

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

Supplemental Pro Forma Information

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.

Such royalty payments were

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

and Upsher Smith entered into a Transition Services Agreement with Upsher Smith related to providing ongoing services associated with

the assets acquired, such as procuring and selling migraine therapy products, providing accounting, and billing services and collecting

accounts receivable and paying trade payables.

Upsher Smith collected cash on behalf of Tonix for revenue generated by sales of the assets

acquired from June 30, 2023, through the transition period and the Seller is obligated to transfer cash generated by such sales to the

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

for the management of certain government rebates.

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

Company’s behalf.

NOTE 12 – ASSET PURCHASE AGREEMENT

On February 2, 2023,

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

(“Healion”) pursuant to which the Company acquired all the pre-clinical infectious disease assets of Healion, including

its portfolio of next-generation antiviral technology assets.

Healion’s drug portfolio includes a class of broad-spectrum

small molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including TNX-3900, formerly known

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

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

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

totaling $ 1.2 million, was expensed as research and development costs since there is no alternative future use and the acquired

intellectual property does not constitute a business.

NOTE 13 – SALE OF COMMON STOCK

2024 At-the-Market

On July 30, 2024,

the Company entered into a Sales Agreement ( the “2024 Sales Agreement”), with AGP pursuant to which the Company may

issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $ 250 .0

million in ATM sales.

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

The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will

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

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

Subsequent to December 31, 2024, the Company has

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.

12 – LICENSE AGREEMENTS WITH UNIVERSITY OF MASSACHUSETTS (UMASS)

June 26, 2025, Tonix obtained an exclusive worldwide license from UMass Chan Medical School for the development of TNX-4800 (formerly

known as mAb 2217LS).

As of December 31, 2025, other than the upfront fee of $ 1.3 million, no payments have been accrued or paid

in relation to this agreement.

13 – SALE AND PURCHASE OF COMMON STOCK

2025 Financing

December 29, 2025, the Company entered into a securities purchase agreement with an institutional investor, pursuant to which

the Company sold 615,025 shares of common stock and pre-funded warrants to purchase up to 615,025 shares of common stock.

offering price per share of common stock was $ 16.26 , and the offering price per share of pre-funded warrant was $ 16.259 .

offering closed on December 30, 2025.

The Company incurred offering expenses of approximately $ 1.5 million, including placement

agent fees of approximately $ 1.2 million.

The Company received net proceeds of approximately $ 18.5 million, after deducting the

underwriting discount and other offering expenses.

Lincoln Park Transaction

June 11, 2025, the Company entered into a purchase agreement (the “2025 Purchase Agreement”) and a registration rights

agreement (the “2025 Registration Rights Agreement”) with Lincoln Park.

Pursuant to the terms of the 2025 Purchase

Agreement, Lincoln Park has agreed to purchase from the Company up to $ 75,000,000 of the Company’s 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, the Company filed with the SEC a registration statement to register for resale under the Securities Act the

shares that have been or may be issued to Lincoln Park under the 2025 Purchase Agreement.

to the terms of the 2025 Purchase Agreement, at the time the Company signed the 2025 Purchase Agreement and the 2025 Registration

Rights Agreement, the Company issued 48,708 shares of common stock to Lincoln Park as consideration for its commitment to purchase

shares of the Company’s 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 consolidated

statement of operations under the 2025 Purchase Agreement.

No shares were sold during the year ended December 31, 2025, under

the 2025 Purchase Agreement.

Company 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.

The Company concluded that the 2025 Purchase Agreement represents a freestanding derivative instrument that does not qualify for

equity classification and therefore requires fair value accounting.

The Company analyzed the terms of the contract and concluded

that the derivative instrument had insignificant value as of December 31, 2025.

At-the-Market Offerings

June 11, 2025, the Company entered into a Sales Agreement (the “2025 Sales Agreement”), with A.G.P./Alliance Global

Partners (“AGP”) pursuant to which the Company may issue and sell, from time to time, shares of common stock having

an aggregate offering price of up to $ 400 .0 million in sales.

AGP is sales agent under the ATM and paid a 3 % commission on each

sale under the 2025 Sales Agreement.

The Company’s common stock is sold at prevailing market prices at the time of the sale,

and, as a result, prices will vary.

During the year ended December 31, 2025, the Company sold 4.1 million shares of common stock

under the 2025 Sales Agreement, for net proceeds of approximately $ 104.2 million.

Subsequent to December 31, 2025, the Company

sold 0.6 million shares of common stock under the 2025 Sales Agreement, for net proceeds of approximately $ 8.6 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.

At-the-Market Offerings

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 common stock having an aggregate offering price of up to $ 250 .0

million in sales.

AGP is sales agent under the ATM and paid a 3 %

commission on each sale under the 2024 Sales Agreement.

The Company’s common stock is sold at prevailing market prices at the time

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

During the year ended December 31, 2025, the Company sold approximately 4.5

million shares of common stock under the Sales Agreement for

net proceeds of approximately $ 112.9

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

The Company can no longer sell shares under the 2024

Sales Agreement as the Company has reached the aggregate $ 250

million in sales.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

2024 Financing

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 .

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.

2024 Financings

19 unchanged sentences

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

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

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

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

The Company received net proceeds of approximately $ 3.9 million, after deducting the underwriting discount and other offering

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

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

Additionally,

16 unchanged sentences

The other terms of the Existing Warrants remained unchanged.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

6 unchanged sentences

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.

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

1 unchanged sentence

reclassified back to equity.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

2023 Financing

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

institutional investors, pursuant to which the Company sold and issued (i) 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.

Pre-Funded Warrants have an exercise price of $ 0.32 per share, were immediately exercisable subject to certain ownership limitations,

and can be exercised at any time until exercised in full.

The Series C Warrants have an exercise price of $ 1,776.00 per share, and

were exercisable on the later of approval by the Company’s stockholders of (i) a proposal to approve the filing of an amendment

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

to 1,000,000,000 and (ii) a proposal to allow the Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635 (the

later of such events, the “Approval Date”) and initially expired on the later of (a) 10 trading days following the

Approval Date and (b) the earlier of (x) the two year anniversary of the Approval Date and (y) 10 trading days following the public

announcement of the U.S.

Food and Drug Administration’s (“FDA”) acknowledgement and acceptance of the New Drug

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

Series D Warrants have an exercise price of $ 2,720.00 per share and were exercisable beginning on the Approval Date through the five-year

anniversary of the Approval Date.

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

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

The Company has adopted a

sequencing approach under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the

classification of its contracts at issuance and at each subsequent reporting date, whereby shares are allocated based on the

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

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

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

remaining Pre-Funded Warrants and 15,917 Series

D Warrants and were therefore classified in equity.

The remaining 9,422 Series

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

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

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

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

the Pre-Funded Warrants, and the equity-classified Series D Warrants on a relative fair value basis.

The issuance costs were allocated

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

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

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

January 25, 2024, the date the Company’s stockholders approved the proposal to file an amendment to the Company’s

Articles of Incorporation to increase the number of authorized shares of common stock from 160,000,000 to 1,000,000,000 , the liability-classified

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

2023 Financing

September 28, 2023, the Company sold 1,266 shares of common stock;

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

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

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

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

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

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

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

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

2023 Financing

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 .

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

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

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

may repurchase up to $ 10.0

million in value of its outstanding common stock from time to time on the open market and in privately negotiated transactions

subject to market conditions, share price and other factors.

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

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

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

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

program for $ 12.5 million at prices ranging from $ 8,800.00 to $ 27,552.00 per share for a gross aggregate cost of approximately

$ 12.5 million.

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

liability-classified Series D Warrants and all of the Series C Warrants were presented within non-current liabilities on the consolidated

balance sheets as of December 31, 2023, and were adjusted to fair value through January 25, 2024, when the warrants were reclassified

Changes in the fair value of the liability-classified warrants were recognized as a separate component in the consolidated

statement of operations.

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.

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

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

cost of $ 1.1 million.

timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions

and other factors and the New Share Repurchase Program may be discontinued or suspended at any time.

Repurchases will

be made in accordance with the rules and regulations promulgated by the Securities and Exchange Commission and certain other legal

requirements to which the Company may be subject.

Repurchases may be made, in part, under a Rule 10b5-1 plan, which

allows stock repurchases when the Company might otherwise be precluded from doing so.

In November 2025, the amount increased to $ 35 .0 million.

the year ended December 31, 2025, the Company repurchased 847,903 shares of its 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 $ 13.8 million.

The repurchased

shares were immediately retired.

Company repurchased the following capital stock:

December 31, 2025

December 31, 2024

Total cost of repurchased

shares (in thousands)

Shares repurchased

Weighted average price per share

timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and

other factors and the New Share Repurchase Program may be discontinued or suspended at any time.

Repurchases will be made in accordance

with the rules and regulations promulgated by the Securities and Exchange Commission and certain other legal requirements to which

the Company may be subject.

Repurchases may be made, in part, under a Rule 10b5-1 plan, which allows stock repurchases when the

Company might otherwise be precluded from doing so.

14 – STOCK-BASED COMPENSATION

2 unchanged sentences

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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

10 unchanged sentences

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.

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.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Board of Directors determines the exercise price, vesting and expiration period of the grants under the Amended and Restated 2020

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.

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, 2025, there were 726,433 options available for future grants under the Amended and Restated

summary of the stock option activity and related information for the Plans for the year ended December 31, 2025 is as follows:

9 unchanged sentences

at December 31, 2025

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.

aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise

price less than the Company’s closing stock price at the respective dates.

weighted average fair value of options granted during the year ended December 31, 2025, and December 31, 2024 was $ 13.10

per share, respectively.

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

8 unchanged sentences

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

assumptions used in the valuation of stock options granted during the years ended December 31, 2025 and 2024 were as follows:

2 unchanged sentences

interest rate

term of option

stock price volatility

dividend yield

Expected term

to 6.08 years

Expected stock

price volatility

Expected dividend

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

risk-free interest rate is based on the yield of Daily U.S.

12 unchanged sentences

May 5, 2023, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2022 Employee Stock Purchase

2023 Employee Stock Purchase Plan.

(the “2023 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

2025 Employee Stock Purchase Plan

(the “2025 ESPP”, and together with the 2023 ESPP, the “ESPP Plans”), which was approved by the Company’s

stockholders on May 8, 2025.

2025 ESPP allows eligible employees to purchase up to an aggregate of 2,000,000 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.

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 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.

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.

2023 ESPP allows eligible employees to purchase up to an aggregate of 250 shares of the Company’s common stock.

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 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.

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, 2025, 159 shares were available

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

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

2 unchanged sentences

purchased as of December 31, 2023, 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.

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.

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

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

Accordingly, during the third

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

was transferred from accrued expenses to additional paid in capital.

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

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

As of December 31, 2025, approximately $ 90,000 of employee payroll deductions had accumulated

and had been recorded in accrued expenses.

In January 2026, 5,883 shares that were purchased as of December 31, 2025, under the

2022 ESPP, were issued.

15 – STOCK WARRANTS

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

December 2028

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

the year ended December 31, 2025, 13,666 ;

5,758 (as the Company received FDA acceptance of our NDA filing), and 1 warrants with

an exercise price of $ 1,056 , $ 1,776 and $ 364,800 , respectively, expired.

the year ended December 31, 2025, no warrants were exercised.

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

2 unchanged sentences

returned and cancelled.

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

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

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

and $ 364,800.00 ,

respectively, expired.

Additionally,

11 unchanged sentences

See Note 13 for further details.

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

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

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

5 unchanged sentences

$ 1.3 million of which $ 1.2 million is included in long-term lease liabilities and $ 0.1 million is included in current lease liabilities.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 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,

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.

Ending December 31,

2030 and thereafter

Included interest

the year ended December 31, 2025, the Company entered into a new operating lease and lease amendments.

The lease commencement

during the fourth quarter of 2025, at which time the Company recognized an additional operating lease liability of approximately

$ 1.3 million based on the present value of the minimum rental payments.

The Company also recognized a corresponding increase to

ROU assets of approximately $ 1.3 million, which represents a non-cash investing and financing activity.

No new leases or amendments

were entered into during the year ended December 31, 2024.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

information related to leases is as follows:

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

lease expense was $ 0.3 million for both the years ended December 31, 2025, and 2024.

information related to leases is as follows:

paid for amounts included in the measurement of lease liabilities:

Cash paid for amounts included in the measurement

of lease liabilities:

December 31, 2025

1 unchanged sentence

cash flow from operating leases (in thousands)

Average Remaining Lease Term

Average Discount Rate

Weighted Average Remaining Lease Term

Weighted Average Discount Rate

Operating leases

17 – COMMITMENTS

1 unchanged sentence

$ 52.3 million at December 31, 2025 for future work to be performed.

PHARMACEUTICALS HOLDING CORP.

TO CONSOLIDATED FINANCIAL STATEMENTS

Company has entered into various exclusive license agreements with various institutions with the right to sublicense, certain

patents, technical information and material, and to develop and commercialize products thereunder.

In addition to any upfront

payments already paid, the Company may be obligated to pay milestone fees ranging from $ 25,000 to $ 5 .0 million based on the

potential achievement of certain development milestones, as well as milestone fees ranging from $ 55,000 to $ 20 .0 million

based on certain potential commercial achievements, as specified in the respective license agreement.

Additionally, for licensed

products sold during the applicable royalty term, the Company must pay royalties in the low-to-mid single digits, beginning in

the year after the Company completes its first commercial sale of a licensed product.

Finally, the Company has the right to grant

sublicenses to third parties under each license agreement and is required to pay a sublicense income share based on the stage

of development of the licensed product at the time the sublicense is granted.

contribution plan

1 unchanged sentence

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.

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, subject to limitations

under the Code.

The Company charged operations $ 0.6 million and $ 1.2 million for the years ended December 31, 2025 and 2024, respectively,

for contributions under the 401(k) Plan.

18 – INCOME TAXES

Components of the net loss consist of the following

(in thousands):

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

Year ended December 31,

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 2025, 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:

of $ 90.1 million related to the Irish operations.

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.

Company adopted ASU 2023-09 and applied the new disclosure requirements prospectively for the year ended December 31, 2025.

A reconciliation

of the anticipated income tax benefit computed by applying the statutory federal income tax rate of 21 % to loss before income taxes to

the amount reported in the statement of operations and comprehensive loss after the adoption of ASU 2023-09 is as follows:

Year Ended December 31,

Statutory Rate

State and Local Income Taxes, Net of Federal Income Tax Effect

Foreign Tax Effects

Change in Foreign Valuation Allowance

Statutory tax rate difference between Ireland and United States

Other Foreign Jurisdiction

Change in Domestic Valuation Allowance

Nontaxable and Nondeductible items

Attributable reduction from control change

Effective Tax Rate

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,

Statutory federal income tax

4 unchanged sentences

Income Tax Provision

Deferred tax assets (liabilities)

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

Deferred tax assets (liabilities) and related valuation allowance as of

December 31, 2025 and 2024 were as follows (in thousands):

Deferred tax assets/(liabilities):

10 unchanged sentences

carryforwards are subject to annual limitations in their use in accordance with Internal Revenue Service Code ("IRC") section

The R&D credit carryforwards at December 31, 2023 have been reduced to $ 0 .0 million to reflect IRC section 383 ownership changes

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

At December 31, 2024,

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

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

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

As such, there are no NOL carryforwards available as

of December 31, 2024.

The R&D credit carryforwards at December 31, 2024 were reduced to $ 0 .0 million to reflect IRC section 383 ownership changes.

There is no limitation currently on any R&D credits generated for 2025 under Sec 383.

In 2025, the Company completed

an analysis under Section 382 of the Internal Revenue Code with respect to its net operating loss carryforwards.

Based on this analysis,

the Company determined that all historical loss carryforwards generated prior to December 31, 2024 are subject to limitation and effectively

unavailable for use under Section 382.

Net operating losses generated after December 31, 2024 are not subject to the Section 382 limitation.

As of December 31, 2025,

the Company had net operating loss carryforwards consisting of $ 405.2 million of Irish NOLs, which may be carried forward indefinitely;

$ 19.4 million of U.S.

federal NOLs, may be carried forward indefinitely;

and $ 9.3 million of state NOLs, which begin to expire in 2035.

Management assesses the

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

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

ended December 31, 2024.

Such objective evidence limits the ability to consider other subjective evidence such as our projections for

future growth.

As such, the Company has determined that it is not more likely than not that the deferred tax assets will be realized

and accordingly, has provided a full valuation allowance against its gross deferred tax assets.

The increase/(decrease) in the valuation

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

million, and $ 14.5

million respectively.

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

income tax expense.

However, as of December 31, 2024 there are no unrecognized tax benefits recorded.

The Company is subject to taxation

in the United States and various states and foreign jurisdictions.

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

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

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

December 31, 2025.

Such objective evidence limits the ability to consider other subjective evidence such as our projections for future

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 year ended December 31, 2025 was an increase of $ 19.4 million, and an increase of $ 17.4 million for the year ended December 31, 2024.

The Company recognizes

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

However, as of December 31, 2025 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, 2025, the Company's tax returns remain open and subject to examination by the tax authorities for the tax years 2022

The Company has not made

payments or received refunds for income taxes for the years ended December 31, 2025 and 2024.

On July 4, 2025 the OBBBA

was enacted into law.

The legislation made several changes to the U.S.

tax code, including the return of 100% bonus depreciation, the

ability to immediately deduct domestic research and development costs, a more favorable rule for deducting interest expenses, and updated

to international tax rules around global intangible low-taxed income and foreign-derived intangible income.

The Company has evaluated

the impact of the new tax provision and determined it to have an immaterial impact.

19 – SUBSEQUENT EVENTS

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

The pay-off amount paid by the Company in

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

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

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

had a closing bid price at or above $ 1.00 per share for a minimum of 10 consecutive business days, the Company’s stock had

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

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

On February 25, 2025, the

Company granted options to purchase an aggregate of 449,708

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

Additionally, the Company granted options to purchase 221,558

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

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

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

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

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

aggregate cost of approximately $ 3 .0 million.

February 24, 2026, the Company granted options to purchase an aggregate of 733,742 shares of the Company’s common stock

to employees with an exercise price of $ 14.29 .

Additionally, the Company granted options to purchase 290,547 shares of the Company’s

common stock to certain employees with an exercise price of $ 17.86 .

to December 31, 2025, the Company has sold 0.6 million shares of common stock under the Sales Agreement, for net proceeds of approximately

$ 8.6 million.

9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data