What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-11 compared with 2025-11-10 · 526 added, 606 removed, 57 unchanged (95% of the section changed)

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

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

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

You can identify

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

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

Those statements include statements

regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which

such statements are based.

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

future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by

such forward-looking statements.

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

Securities and Exchange Commission.

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

from those in forward-looking statements.

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

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

We believe that

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

No assurances are made that

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

could cause differences include, but are not limited to:

the ability to commercialize our approved products;

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Condition

and Results of Operations includes a number of forward-looking statements that reflect Management’s current views with respect to

future events and financial performance.

You can identify these statements by forward-looking words such as “may” “will,”

“expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words.

statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as

the assumptions on which such statements are based.

Prospective investors are cautioned that any such forward-looking statements are not

guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated

by such forward-looking statements.

Readers are urged to carefully review and consider the various disclosures

made by us in this report and in our other reports filed with the Securities and Exchange Commission.

Important factors known to us could

cause actual results to differ materially from those in forward-looking statements.

We undertake no obligation to update

or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating

results over time.

We believe that our assumptions are based upon reasonable data derived from and known about our business and operations.

No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

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

our need for additional financing;

uncertainties of patent protection and litigation;

uncertainties of

government or third party payor reimbursement;

limited research and development efforts and dependence upon third parties;

related to failure to obtain clearances or approvals from the United States Food and Drug Administration, or FDA, and noncompliance

with FDA regulations.

We are a fully-integrated, commercial-stage biotechnology company with marketed products and a pipeline of development candidates.

products include Tonmya (cyclobenzaprine HCl sublingual tablets), a first-in-class, non-opioid analgesic medicine for the

treatment of fibromyalgia, for which we received approval in August 2025 by the U.S.

Food and Drug Administration (FDA).

is a chronic pain condition that affects millions of adults, the majority of whom are women.

Tonmya is the first new prescription medicine

for fibromyalgia approved by the FDA in more than 15 years.

We expect to launch Tonmya in the U.S.

before the end of November 2025.

also market two treatments for acute migraine in adults, Zembrace® SymTouch® (sumatriptan injection) and Tosymra® (sumatriptan

nasal spray).

Our development pipeline is focused on central nervous system (CNS) disorders,

immunology, immuno-oncology, rare disease and infectious disease.

Within CNS, TNX-102 SL is being studied 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 OASIS Phase 2 study funded by the U.S.

Department of Defense (“DoD”).

TNX-102 SL is also in development

for major depressive disorder, with us expecting to initiate a potential pivotal Phase 2 study by mid-year 2026, contingent on IND clearance

Our immunology development portfolio consists of biologics to address organ transplant rejection, autoimmunity and cancer,

including TNX-1500, which is a dimeric Fc-modified humanized monoclonal antibody targeting CD40-ligand (CD40L or CD154) being developed

for the prevention of kidney transplant rejection and the treatment of autoimmune diseases.

In collaboration with Massachusetts General

Hospital (“MGH”), an open-label Phase 2 study of TNX-1500 is planned to initiate in the first half of 2026 to evaluate safety

and activity in five kidney transplant recipients, contingent on FDA clearance of an investigator-initiated IND and approval by the institutional

review board (“IRB”).

Our rare disease portfolio includes TNX-2900, intranasal oxytocin potentiated with magnesium, in development

for Prader-Willi syndrome and for which we plan to initiate a Phase 2 study in the second half of 2026.

Our infectious disease portfolio

includes TNX-801 (recombinant horsepox, live vaccine), a vaccine in development for prevention of mpox and smallpox.

We are also developing

TNX-4800 (anti-OspA mAb), a long-acting monoclonal antibody for the seasonal prevention of Lyme Disease, and expects to initiate an adaptive

Phase2/3 study in 2027.

TNX-4800 was licensed from the University of Massachusetts Chan Medical School in 2025.

Finally, TNX-4200 for

which we have a contract with the U.S.

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

years, is a small molecule broad-spectrum antiviral agent targeting CD45 for the prevention or treatment of infections to improve the

medical readiness of military personnel in biological threat environments.

We own and operate a state-of-the art research and development

facility in Frederick, Maryland.

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

Zembrace® SymTouch® and Tosymra® are registered trademarks of Tonix Medicines, Inc.

All other marks are the property of their

respective owners.

of Operations

risks related to the failure

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

risks related to the failure to successfully market any

of our products;

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

uncertainties of patent protection

and litigation;

uncertainties of government or third party payor reimbursement;

limited research and development efforts and dependence

upon third parties;

and substantial competition.

Business Overview

We are a fully-integrated biopharmaceutical company commercializing and

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

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

In August 2025, we received approval from the FDA for TONMYA® (cyclobenzaprine

HCl sublingual tablets) for the treatment of fibromyalgia.

TONMYA, our first internally developed product to become FDA approved, was

commercially launched by us 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.

We hold worldwide commercialization

rights to TONMYA.

In addition to TONMYA, we market two FDA-approved prescription products for the treatment of acute migraine:

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

Our commercial platform includes sales, marketing,

market access, distribution, and patient support capabilities.

We are advancing a diversified development pipeline generated through internal

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

Our pipeline addresses conditions

that span CNS, infectious disease, immunology, and rare disease, with multiple programs in clinical and preclinical development.

proprietary cyclobenzaprine HCl sublingual tablet formulation is referred to as “TNX-102 SL” outside of the fibromyalgia indication.

We are exploring the utility of TNX-102 SL in Phase 2 clinical trials for major depressive disorder (MDD) and acute stress disorder (ASD)/acute

stress reaction (ASR).

TNX-102 SL is being developed to treat ASD/ASR under an Investigator-Initiated investigational new drug application

(“IND”) at the University of North Carolina in the ongoing OASIS study funded by a grant they received from the U.S.

of Defense (“DoD”).

A Phase 2 study of TNX-102 SL for MDD is expected to commence mid-2026 under a Tonix IND that has been

cleared by FDA.

Our clinical stage

infectious disease portfolio includes monoclonal antibody TNX-4800 (anti- Borrelia OspA human monoclonal antibody) for the

prevention of Lyme disease in the U.S., for which initiation of an adaptive Phase 2 field study is planned for the first half of

2027, pending FDA agreement.

TNX-4800 was licensed from UMASS Chan Medical School.

Our clinical-stage immunology development

portfolio consists of biologics to address organ transplant rejection and autoimmunity, 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 kidney

transplant rejection.

Another CNS candidate in clinical development is TNX-1300 (double-mutant cocaine esterase), which is in Phase

2 for the treatment of cocaine intoxication.

TNX-1300 has been granted Breakthrough Therapy designation by the FDA and a Phase 2a

study was completed.

However, because of the challenges of recruiting eligible patients into a subsequent Phase 2 study, we

terminated that study and intend to meet with the FDA in 2026 to inform the clinical design of our next Phase 2 study.

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.

Our pre-clinical, pre-IND infectious

disease portfolio includes TNX-801 (horsepox, live virus vaccine), as a potential 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.

The facility was decommissioned in 2024 and may be reactivated on the earlier of 2027

or in the case of a national or international emergency.

Our 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.

The TNX-4200 program is supported by a $34 million

contract over five years from the U.S.

DoD’s Defense Threat Reduction Agency (DTRA).

We own and operate a state-of-the art

research facility in Frederick, Maryland that supports this research.

Our 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 and colorectal

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

Finally, our pre-clinical, pre-IND CNS portfolio

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

licensed from Rutgers University.

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

Zembrace SymTouch and

Tosymra are registered trademarks of Tonix Medicines.

TONMYA is a registered trademark of Tonix Pharma Limited.

All other marks

are the property of their respective owners.

We are led by a management team with significant industry experience in drug development.

Results of Operations

We anticipate that

our results of operations will fluctuate for the foreseeable future due to several factors, such as the sales of Zembrace and Tosymra

and ultimately Tonmya, following launch in November 2025, the progress of our research and development efforts and the timing and

outcome of regulatory submissions.

Due to these uncertainties, accurate predictions of future operations are difficult or impossible

Months Ended September 30, 2025 Compared to Three Months Ended September 30, 2024

following table sets forth our operating expenses for the quarter ended September 30, 2025 and 2024 (in thousands):

Three months ended

September 30,

Product revenue, net

COSTS AND EXPENSES:

Cost of sales

Research and development

Selling, general and administrative

Total operating expenses

Operating loss

Interest income

Interest expense

Other expense, net

recognized for the quarter ended September 30, 2025 and 2024, was $3.3 million and $2.8 million, respectively.

The increase is predominantly

due to increased demand for our marketed migraine products and additional sales representatives.

Company’s net product revenues are summarized below:

September 30,

Zembrace Symtouch

Total product revenues

Cost of sales recognized for the quarter ended September 30, 2025 and 2024, was $1.4 million and $1.6

million, respectively.

The decrease is predominantly due to decreased inventory write-offs quarter over quarter.

and Development Expenses .

Research and development expenses for the three months ended September 30, 2025 were $9.3

million, an increase of $0.2 million, or 2%, from $9.1 million for the three months ended September 30, 2024.

This increase is

predominately due to increased manufacturing expenses of $2.3 million, non-clinical expenses of $0.4 million and employee-related

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

of $2.1 million, regulatory expenses of $0.3 million and professional fees of $0.6 million due to a reduction in expenditures.

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

three months ended September 30, 2025, and 2024.

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

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

Due to these uncertainties,

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

Three Months Ended March 31, 2026

Compared to Three Months Ended March 31, 2025

The following table sets forth our operating

expenses for the three months ended March 31, 2026 and 2025 (in thousands):

Three months ended

September 30,

(in thousands)

Research and development expenses:

Direct expenses – TNX - 102 SL

Direct expenses – TNX - 801

Direct expenses – TNX - 1500

Direct expenses – TNX - 1700

Direct expenses – TNX - 1900

Direct expenses – Other programs

Internal staffing, overhead and other

Total research & development

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

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

Included in “Internal Staffing,

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

regulatory and legal.

general and Administrative Expenses .

General and administrative expenses for the

three months ended September 30, 2025, were $25.7 million, an increase of $18.0 million, or 234%, from $7.7 million incurred

in the three months ended September 30, 2024.

The increase is primarily due to an increase in sales and marketing of $13.3 million,

employee-related expenses of $2.5 million, professional expenses of $1.6 million, and legal expenses of $0.4 million.

All increases

are related to our marketed migraine products as well as preparation for the launch of Tonmya in November 2025.

As a result of the foregoing, the net loss for the three months ended September 30, 2025 was $32.0 million,

an increase of $17.8 million, or 125%, compared to a net loss of $14.2 million for the three months ended September 30, 2024.

Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

following table sets forth our operating expenses for the nine months ended September 30, 2025 and 2024 (in thousands):

September 30,

Product revenue, net

2 unchanged sentences

Research and development

Selling, general and administrative

Asset impairment charges

General and administrative

Total operating expenses

Operating loss

Gain on change in fair value of warrant liabilities

Loss on extinguishment of debt

Interest income

Interest expense

Other expense, net

recognized for the nine months ended September 30, 2025 and 2024, was $7.7 million and $7.5 million, respectively.

The increase is predominantly

due to increased demand for our marketed migraine products and additional sales representatives.

Company’s net product revenues are summarized below:

September 30,

Revenue recognized for the three months ended March 31, 2026 and 2025, was $6.9 million and $2.4 million, respectively.

The Company’s net product revenues are summarized below:

Three months ended

Zembrace Symtouch

1 unchanged sentence

Cost of Sales .

Cost of sales recognized for the nine months ended September 30, 2025 and 2024, was $5.6 million and $6.6 million, respectively.

The decrease is predominantly due to decreased write-offs period over period.

and Development Expenses .

Research and development expenses for the nine months ended September 30, 2025 were $27.5

million, a decrease of $4.2 million, or 13%, from $31.7 million for the nine months ended September 30, 2024.

This decrease is

predominately due to decreased clinical expenses of $2.9 million, as a result of fewer trials in the clinic and pipeline prioritization

period over period, employee-related expenses of $1.5 million, regulatory expenses of $1.6 million and office-related expenses

of $2.6 million due to a reduction in expenditures offset by an increase in non-clinical expenses of $1.5 million and manufacturing

expenses of $2.9 million due to pipeline prioritization.

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

nine months ended September 30, 2025, and 2024.

Nine months ended

September 30,

Cost of sales recognized for the three months ended March 31, 2026 and 2025, was $1.6 million and $0.9 million, respectively.

increase is predominantly due to the launch of Tonmya in November 2025.

Development Expenses .

Research and development expenses for the three months ended March 31, 2026, were $18.2 million,

an increase of $10.8 million, or 146%, from $7.4 million for the three months ended March 31, 2025.

The increase is predominately

due to increased clinical expenses of $0.8 million, non-clinical expenses of $0.4 million, and manufacturing expenses of $6.6 million

as a result of pipeline prioritization period over period, and employee-related expenses of $2.5 million due to an increased workforce

predominately as a result of the launch of TONMYA in November 2025.

The table below summarizes

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

31, 2026, and 2025.

(in thousands)

9 unchanged sentences

Total research & development

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

as fees paid to contractors, consultants and contract research organizations in connection with our development work.

in “Internal Staffing, Overhead and Other” is overhead, supplies, research and development employee costs (including

stock option expenses), travel, regulatory and legal.

General and Administrative

General and administrative expenses for the nine months ended September 30, 2025 were $52.0 million, an

increase of $27.5 million, or 112%, from $24.5 million incurred in the nine months ended September 30, 2024.

The increase is primarily

due to an increase in sales and marketing of $19.9 million, employee-related expenses of $3.6 million, professional expenses of

$2.6 million, and legal expenses of $1.1 million.

All increases are related to our marketed migraine products as well as preparation

for the launch of Tonmya in November 2025.

Asset impairment

Reflected in asset impairment charges in the consolidated statements of operations for the nine months ended September

30, 2024, is a non-cash impairment charge of $48.8 million related to property and equipment, a non-cash impairment of $1.0 million

related to goodwill, and a non-cash impairment charge of $9.2 million related to intangible assets.

impairment of the Tosymra and Zembrace inventory, intangibles and goodwill was driven by our delayed investment in the sales personnel

required to drive growth in the business as we are focusing our cash resources to further our efforts to bring TNX-102 SL through

the approval process and to market.

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

of Tosymra and Zembrace remain, in that we now have the infrastructure to be ready to manufacture and sell TNX-102 SL under an

expedited timeline following FDA approval in August 2025.

As a result of the foregoing, the net loss for the nine months ended September 30, 2025 was $77.1 million, a decrease

of $30.8 million, or 29%, compared to a net loss of $107.9 million for the nine months ended September 30, 2024.

On June 26, 2025, we obtained an

exclusive worldwide license from UMass Chan Medical School for the development of TNX-4800 (formerly known as mAb 2217LS).

As of September

30, 2025, other than an upfront fee of $1.3 million, no payments have been accrued or paid in relation to this agreement.

Purchase Agreements

June 23, 2023, we entered into an asset purchase agreement with Upsher Smith for the acquisition of certain assets related to

Zembrace and Tosymra (such businesses collectively, the “Business”) and certain inventory related to the Business

for an aggregate purchase price of approximately $26.5 million, including certain deferred payments (such transaction, the “USL

Acquisition”).

The transaction closed on June 30, 2023.

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

the Business in the U.S.

Our direct research

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

contractors, consultants and contract research organizations in connection with our development work.

Included in “Internal

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

travel, regulatory and legal.

Selling, General

and Administrative Expenses .

General and administrative expenses for the three months ended March 31, 2026, were $28.6

million, an increase of $18.5 million, or 183%, from $10.1 million incurred in the three months ended March 31, 2025.

is primarily due to an increase in sales and marketing of $11.3 million, an increase in employee related expenses of $3.9 million,

and increased professional fees of $2.7 million, predominately as a result of the launch of TONMYA in November 2025.

As a result of the forgoing, the net loss for the three months ended March 31, 2026, was $40.2 million,

compared to a net loss of $16.8 million for the three months ended March 31, 2025, an increase of $23.4 million or 139%.

increase in loss is predominately due to increased spending on research and development and selling, general and administrative

License Agreement

On June 26, 2025, we

obtained an exclusive worldwide license from the University of Massachusetts (“UMass”) Chan Medical School for the

development of TNX-4800 (formerly known as mAb 2217LS).

As of December 31, 2025, other than an upfront fee of $1.3 million, no

payments have been accrued or paid in relation to this agreement.

Asset Purchase Agreements

On June 23, 2023, we

entered into an asset purchase agreement with Upsher Smith for the acquisition of certain assets related to Zembrace and Tosymra.

We have assumed certain

obligations of Upsher Smith, including the payment of quarterly royalty payments on annual net sales from the Business in the U.S.

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

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

9% for net sales of $75

to $100 million;

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

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

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.

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;

are 3% for net sales of $0 to $30 million,

6% of net sales of $30 to $75 million;

12% for net sales of $75 to $100 million;

16% for net sales

of greater than $100 million.

Such royalty payments are payable until July 19, 2025.

Upon the entry of a generic version of the

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

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

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

applicable country or for as long as the manufacture, use or sale of Tosymra in such country is covered by a valid claim of a

licensed patent, and up to $15 million per Tosymra product on the achievement of sales milestones.

and Capital Resources

of September 30, 2025, we had working capital of $187.0 million, comprised primarily of cash and cash equivalents of $190.1 million,

accounts receivable, net of $3.5 million, inventory of $5.7 million and prepaid expenses and other of $8.8 million, offset by

$8.5 million of accounts payable, $12.3 million of accrued expenses, and current lease liabilities of $0.2 million.

A significant

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

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

following table provides a summary of operating, investing and financing cash flows for the nine months ended September 30, 2025,

and 2024, respectively (in thousands):

September 30,

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

Such royalty payments were payable until July 19, 2025.

Upon the entry of a generic version of the relevant product, the applicable

royalty rates will be reduced by 90% for Zembrace, and by 66.7% for Tosymra.

In addition, we have

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

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

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

up to $15 million per Tosymra product on the achievement of sales milestones ranging from $250 million to $1 billion in annual worldwide net sales.

Liquidity and Capital Resources

As of March 31, 2026, we had working capital of $177.5 million, comprised

primarily of cash and cash equivalents of $185.5 million, accounts receivable, net of $8.8 million, inventory of $3.6 million, and prepaid

expenses and other of $9.2 million, offset by $9.7 million of accounts payable, $19.8 million of accrued expenses and other current liabilities,

and $0.2 million of lease liabilities, short term.

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

performed in relation to our clinical programs, and accruals for gross to net deductions related to our commercial products.

The following table

provides a summary of operating, investing and financing cash flows for the quarters ended March 31, 2026, and 2025, respectively

(in thousands):

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

the nine months ended September, 2025 and 2024, we used approximately $60.2 million and $46.3 million of cash in operating activities,

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

The increase in cash outlays principally resulted from an increase in general and administrative expenses as a result of the potential

product launch of TNX-102 SL.

For the nine months ended September 30, 2025, net cash provided from financing activities was $155.4

million and $49.7 million, respectively predominately from the issuance of common stock.

Cash used in investing activities for

the nine months ended September 30, 2025, was $3.5 million related to the issuance of a note and purchase of property and equipment.

Cash used in investing activities for the nine months ended September 30, 2024, was $0.1 million related to the purchase of property

and equipment.

We believe that our cash resources

at September 30, 2025, and the proceeds that we received from the sales of equity during the fourth quarter of 2025, will meet our operating

and capital expenditure requirements into the first quarter of 2027.

Net cash provided by (used in) financing activities

For the three months

ended March 31, 2026, and 2025, we used approximately $42.3 million and $16.6 million in operating activities, respectively, which

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

three months ended March 31, 2026, net cash provided by financing activities was $20.2 million, predominately from the proceeds

from the sale of our common stock.

For the three months ended March 31, 2025, net cash provided by financing activities was $49.5

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

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

Cash used by investing activities for the three months

ended March 31, 2026, and 2025, was $1.7 million and $6,000 respectively, related to the purchase of property and equipment.

increase is predominately due to more laboratory equipment purchases.

We believe that our cash resources at March 31, 2026, and the net proceeds

of $22.6 million that we raised from equity offerings in the second quarter of 2026 (See Note 12) will meet our planned operating and

capital expenditure requirements into early second quarter of 2027, but will not extend to 12 months from the issuance of these financial

We continue 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, we may not be able to raise capital

on terms acceptable to us, or at all.

Without the successful product launch of Tonmya and obtaining additional funds, we may be

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

delay product development in an effort to maintain sufficient funds to continue operations.

If any of these events occurs, our

ability to achieve development and commercialization goals will be adversely affected and we may be forced to cease operations.

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

Liquidity Requirements

We expect to incur losses

from operations for the near future.

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

with its previously announced strategic prioritization of the commercial launch of Tonmya for the treatment of fibromyalgia.

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

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

These factors raise substantial doubt about our ability

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

We must obtain additional funding through

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

Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development activities, or other

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

If any of these events occur,

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

Future Liquidity Requirements

We expect to incur

losses from operations for the near future.

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

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

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

Our future capital

requirements will depend on a number of factors, including the successful product launch of Tonmya, the progress of our research

and development of product candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing,

prosecuting, maintaining, defending and enforcing patent claims and other intellectual property rights, the status of competitive

products, the availability of financing and our success in developing markets for our product candidates.

We will need to successfully launch

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

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

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

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

Furthermore, if we issue additional

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

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

If the product launch

of Tonmya is unsuccessful and additional financing is not available or is not available on acceptable terms, we may be

required to delay, reduce the scope of or eliminate our research and development programs, reduce our commercialization efforts

or obtain funds through arrangements with collaborative partners or others that may require us to relinquish rights to certain

product candidates that we might otherwise seek to develop or commercialize independently.

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

approvals, the progress of our research and development of product candidates, the costs involved in preparing, filing, prosecuting,

maintaining, defending and enforcing patent claims and other intellectual property rights, the status of competitive products,

and our success in developing markets for our product candidates.

We will need to obtain

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

Future financing may include the issuance of equity

or debt securities, obtaining credit facilities, or other financing mechanisms.

Even if we are able to raise the funds required,

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

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

Furthermore, if we issue additional equity or debt

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

senior to those of existing holders of our common stock.

If additional financing

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

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

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

independently.

2025 Lincoln Park Transaction

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

(the “2025 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).

to the terms of the 2025 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $75,000,000 of our common stock

(subject to certain limitations) from time to time during the term of the 2025 Purchase Agreement.

Pursuant to the terms of the

2025 Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the Securities

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

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

Agreement, we issued 48,708 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our

common stock under the 2025 Purchase Agreement.

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

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

On June 11, 2025, we

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

Registration Rights Agreement”) with Lincoln Park.

Pursuant to the terms of the 2025 Purchase Agreement, Lincoln Park has

agreed to purchase up to $75,000,000 of our common stock (subject to certain limitations) from time to time during the term

of the 2025 Purchase Agreement.

Pursuant to the terms of the 2025 Registration Rights Agreement, we filed with the SEC a registration

statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the

2025 Purchase Agreement.

Pursuant to the terms

of the 2025 Purchase Agreement, at the time we signed the 2025 Purchase Agreement and the 2025 Registration Rights Agreement, we

issued 48,708 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock

under the 2025 Purchase Agreement.

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

evaluated the 2025 Purchase Agreement under ASC 815-40 Derivatives and Hedging-Contracts on an Entity’s Own

Equity as it represents the right to require Lincoln Park to purchase shares of common stock in the future,

similar to a put option.

We concluded that the 2025 Purchase Agreement represents a freestanding derivative instrument that does not qualify

for equity classification and therefore requires fair value accounting.

We analyzed the terms of the contract and concluded that

the derivative instrument had insignificant value as of September 30, 2025.

At-the-Market Offerings

On June 11, 2025, we entered into

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

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

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

Our common stock is sold at

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

During each of the three and nine months ended September

30, 2025, we sold approximately 1.7 million shares of common stock under the 2025 Sales Agreement for net proceeds of approximately $55.7

Subsequent to September 30, 2025, we sold 1.6 million shares of common stock under the Sales Agreement, for net proceeds of approximately

$34.7 million.

At-the-Market Offerings

On July 30, 2024,

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

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

AGP is the sales agent

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

Our common stock is sold at prevailing market

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

During the three and nine months ended September 30, 2025,

we sold approximately 0.9 million and 4.5 million shares, respectively, of common stock under the Sales Agreement for net proceeds

of approximately $37.5 million and $112.9 million, respectively.

We can no longer sell shares under the 2024 Sales Agreement as

we have reached the aggregate $250 million in sales.

2024 Financings

July 9, 2024, we entered into a securities purchase agreement with certain institutional and retail investors, pursuant to which

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

The offering price

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

offering closed on July 10, 2024.

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

of approximately $0.3 million.

We received net proceeds of approximately $3.5 million, after deducting the underwriting discount

and other offering expenses.

2024 Financings

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

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

The offering price per share of common

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

offering closed on June 13, 2024.

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

of approximately $0.3 million.

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

and other offering expenses.

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

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

The offering price

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

offering closed on June 28, 2024.

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

of approximately $0.3 million.

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

and other offering expenses.

2024 Financing

March 28, 2024, we entered into an agreement to sell 3,365 shares of common stock, pre-funded warrants to purchase up to 1,219

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

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

The offering price per share of common stock was $960.00, and the offering price per share of pre-funded warrants was $959.68.

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

We received net

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

Additionally,

with the closing of the financing on April 1, 2024, we entered into warrant amendments (collectively, the “Warrant Amendments”)

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

We agreed to amend the

exercise price of each Existing Warrant to $1,056.00 upon approval by our stockholders of a proposal to allow the Existing Warrants

to become exercisable in accordance with Nasdaq Listing Rule 5635 or, if stockholder approval is not obtained by October 1, 2024,

we agreed to automatically amend the exercise price of the Existing Warrants to the Minimum Price (as defined in Nasdaq Listing

Rule 5635(d)) of our common stock on October 1, 2024, if and only if the Minimum Price is below the then current exercise price.

Upon stockholder approval, the termination date for the warrants issued August 2023 (the “August Warrants”) to purchase

up to an aggregate of 2,172 shares was amended to April 1, 2029;

the termination date for Series A Warrants to purchase up to

an aggregate of approximately 2,782 shares is April 1, 2029;

the termination date for Series B Warrants to purchase up to an aggregate

of approximately 2,782 shares is April 1, 2025;

the termination date for Series C Warrants to purchase up to an aggregate of approximately

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

holders of the Company’s public announcement of the FDA’s acknowledgement and acceptance of the Company’s NDA

relating to TNX-102 SL in patients with Fibromyalgia;

the termination date for Series D Warrants to purchase up to an aggregate

of approximately 10,884 shares is April 1, 2029.

The other terms of the Existing Warrants remained unchanged.

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

is contingent on stockholder approval precluded the Existing Warrants from being indexed to our own stock, and as a result, did

not meet the criteria for equity classification under ASC 815-40.

We accounted for the incremental fair value of the Warrant Amendments

of $3.0 million as a direct and incremental cost of the March 2024 financing as an offset to the proceeds received.

the Existing Warrants were equity-classified prior to the Warrant Amendments, the net impact to the consolidated statement of

stockholders’ equity was zero.

We then reclassified the Existing Warrants from equity to liabilities at post-modification

fair value on April 1, 2024.

On May 22, 2024, the date our stockholders approved the proposal to fix the exercise prices at $1,056.00

per share, the Existing Warrants were adjusted to fair value and reclassified back to equity.

September 2024, the Board of Directors approved a 2024 share repurchase program pursuant to which we may repurchase up

to $10.0 million in value of its outstanding common stock from time to time on the open market and in privately negotiated transactions

subject to market conditions, share price and other factors.

the nine months ended September 30, 2025, we repurchased 400,000 of shares of common stock outstanding under the 2024 share repurchase

at prices ranging from $9.98 to $20.47 per share for a gross aggregate cost of approximately $5.9 million.

The repurchased shares

were immediately retired.

repurchased the following capital stock:

September 30, 2025

September 30, 2024

Total cost of repurchased shares (in thousands)

Shares repurchased

Weighted average price per share

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

No shares were sold during the quarter ended March 31, 2026, under the 2025 Purchase Agreement.

We evaluated the 2025

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

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

We concluded that the

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

requires fair value accounting.

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

value as of March 31, 2026 and December 31, 2025.

2025 At-the-Market Offering

On June 11, 2025, we

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

to which we may issue and sell, from time to time, shares of common stock having an aggregate offering price of up to $400.0 million

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

Our common stock is

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

During the quarter ended March 31, 2026,

we sold 1.4 million shares of common stock under the 2025 Sales Agreement, for net proceeds of approximately $20.1 million.

to March 31, 2026, we sold 1.7 million shares of common stock under the 2025 Sales Agreement, for net proceeds of approximately $22.6

2024 At-the-Market Offering

On July 30, 2024, we

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

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

AGP will act as sales agent and will be paid a 3% commission

on each sale under the Sales Agreement.

Our common stock will be sold at prevailing market prices at the time of the sale, and,

as a result, prices will vary.

During the three months ended March 31, 2025, we sold approximately 2.7 million shares of common

stock under the Sales Agreement, for net proceeds of approximately $59.8 million.

Repurchase Program

September 2024, the Board of Directors approved a 2024 share repurchase

program pursuant to which we may repurchase up to $10.0 million in value of its outstanding common stock from time to

time on the open market and in privately negotiated transactions subject to market conditions, share price and other

During the three months ended March 31, 2025, the Company repurchased 250,000 of

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

aggregate cost of approximately $3.0 million.

No shares of common stock were repurchased

during the three months ended March 31, 2026.

timing and amount of any shares repurchased will be determined based on our evaluation of market conditions and other

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

Repurchases will

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

factors and the share repurchase program may be discontinued or suspended at any time.

Repurchases will be

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

requirements to which the Company may be subject.

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

May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp.

Amended and Restated 2020 Stock Incentive Plan

(“Amended and Restated 2020 Plan”).

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

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

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

to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided

in the Amended and Restated 2020 Plan).

Stock Compensation

Stock Incentive Plans

On May 1, 2020, our

stockholders approved the Tonix Pharmaceuticals Holding Corp.

Amended and Restated 2020 Stock Incentive Plan (“Amended and

Restated 2020 Plan”).

Under the terms of

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

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

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

be increased to the extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise

provided in the Amended and Restated 2020 Plan).

In addition, the Amended and Restated 2020 Plan contains an “evergreen provision”

2 unchanged sentences

1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number of shares of common stock outstanding

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

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

issued pursuant to awards or available for future awards).

On May 8, 2025, our stockholders approved the addition of 1,000,000

shares to the Company’s Amended and Restated 2020 Plan.

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 September 30, 2025, there were 737,782 options available for future grants under the Amended and Restated

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

price less than our closing stock price at the respective dates.

weighted average fair value of options granted during the three and nine months ended September 30, 2025 was $31.62 per share

and $12.72 per share, respectively.

The weighted average fair value of options granted during the three and nine months ended

September 30, 2024 was $15.24 per share and $867.96 per share, respectively.

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

discussed below, and the closing market price of our common stock on the date of the grant.

The fair value of the award is measured

on the grant date.

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

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

In addition, we issue options to directors which

vest over a one-year period.

We also issue premium options to executive officers which have an exercise price greater than the

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

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

Stock-based compensation expense related to awards

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

compensation expense relating to options granted of $1.8 million, of which $1.2 million and $0.6 million, related to General and

Administration and Research and Development, respectively was recognized for the quarter ended September 30, 2025.

compensation expense relating to options granted of $1.0 million, of which $0.7 million and $0.3 million, related to General and

Administration and Research and Development, respectively was recognized for the quarter ended September 30, 2024.

compensation expense relating to options granted of $4.1 million, of which $2.8 million and $1.3 million, related to General and

Administration and Research and Development, respectively was recognized for the nine-month period ended September 30, 2025.

compensation expense relating to options granted of $3.9 million, of which $2.8 million and $1.1 million, related to General and

Administration and Research and Development, respectively was recognized for the nine-month period ended September 30, 2024.

of September 30, 2025, we had approximately $13.6 million of total unrecognized compensation cost related to non-vested awards

granted under the Plans, which we expect to recognize over a weighted average period of 2.89 years.

Stock Purchase Plans

May 5, 2023, our stockholders approved the Tonix Pharmaceuticals Holdings Corp.

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

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

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

The Board of Directors determines the exercise price, vesting

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

However, the exercise price of an incentive stock

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

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

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

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

Additionally, the expiration period of

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

As of March 31, 2026, there were 425,649 options

available for future grants under the Amended and Restated 2020 Plan.

On May 8, 2025, the

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

We measure the fair

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

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

The fair value of the award is

measured on the grant date.

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

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

In addition, the Company

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

The Company also issues premium options to executive officers which

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

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

Stock-based compensation

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

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

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

The expected term of options is determined

using the simplified method, as provided in an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on

the Company’s historical stock price volatility.

The weighted average

fair value of options granted for the three-month periods ended March 31, 2026 and 2025 was $13.4 and $7.55 per share, respectively.

Stock-based compensation

expense relating to options granted of $1.9 million, of which $1.3 million and $0.6 million, related to Selling, General and Administration

and Research and Development, respectively, was recognized for the three months ended March 31, 2026.

Stock-based compensation

expense relating to options granted of $0.9 million, of which $0.6 million and $0.3 million, related to Selling, General and Administration

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

As of March 31, 2026,

we had approximately $23.3 million of total unrecognized compensation cost related to non-vested awards granted under the Plans,

which the Company expects to recognize over a weighted average period of 3.36 years.

Employee Stock Purchase Plan

ESPP”), which was replaced by the Tonix Pharmaceuticals Holdings Corp.

2025 Employee Stock Purchase Plan (the “2025

ESPP”, and together with the 2023 ESPP, the “ESPP Plans”), which was approved by our stockholders on May 8,

2025 ESPP allows eligible employees to purchase up to an aggregate of 2,000,000 shares of our common stock.

Under the 2025 ESPP,

on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering

period, which allows the eligible employees to purchase shares of our common stock at the end of the offering period.

Each offering

period under the 2025 ESPP is for six months, which can be modified from time to time.

Subject to limitations, each participant

will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the

offering period by the applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at

the beginning or end of each offering period, whichever is less.

A participant must designate in his or her enrollment package

the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the 2025 ESPP,

subject to the statutory limit under the Code.

2023 ESPP allows eligible employees to purchase up to an aggregate of 250 shares of our common stock.

Under the 2023 ESPP, on

the first day of each offering period, each employee eligible for that offering period has the option to enroll for that offering

period, which allows the eligible employees to purchase shares of our common stock at the end of the offering period.

On May 5, 2023, our

stockholders approved the Tonix Pharmaceuticals Holdings Corp.

2023 Employee Stock Purchase Plan.

(the “2023 ESPP”),

which was replaced by the Tonix Pharmaceuticals Holdings Corp.

2025 Employee Stock Purchase Plan (the “2025 ESPP”,

and together with the 2023 ESPP, the “ESPP Plans”), which was approved by our stockholders on May 8, 2025.

The 2025 ESPP allows

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

Under the 2025 ESPP, on the

first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering period,

which allows the eligible employees to purchase shares of the Company's common stock at the end of the offering period.

Each offering

1 unchanged sentence

Subject to limitations, each participant

will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll deductions for the

offering period by the applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at

the beginning or end of each offering period, whichever is less.

A participant must designate in his or her enrollment package

the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the 2023 ESPP,

subject to the statutory limit under the Code.

As of September 30, 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.

the nine months ended September 30, 2025, and 2024, $84,000 and $27,000, respectively, was expensed.

In January 2024, 21 shares

that were purchased as of December 31, 2023, under the 2022 ESPP, were issued.

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 September 30, 2025, approximately $57,000 of employee payroll deductions

had accumulated and had been recorded in accrued expenses.

and Development Contracts

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

$22.7 million at September 30, 2025 for future work to be performed.

have 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, we may be obligated to pay milestone fees ranging from $0.4 million to $5.0 million based on the potential achievement

of certain development milestones, as well as milestone fees ranging from $1.0 million 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, we must pay royalties in the low-to-mid single digits, beginning in the year after we complete our first

commercial sale of a licensed product.

Finally, we have the right under each license agreement to grant sublicenses to third parties and are required to pay a sublicense income share based on the stage of development of the licensed

product at the time the sublicense is granted.

September 30, 2025, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as

follows (in thousands):

will be permitted to purchase a number of shares determined by dividing the employee's accumulated payroll deductions for the offering

period by the applicable purchase price, which is equal to 85 percent of the fair market value of our common stock at the beginning

or end of each offering period, whichever is less.

A participant must designate in his or her enrollment package the percentage

(if any) of compensation to be deducted during that offering period for the purchase of stock under the 2025 ESPP, subject to the

statutory limit under the Code.

The 2023 ESPP allows

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

Under the 2023 ESPP,

on the first day of each offering period, each eligible employee for that offering period has the option to enroll for that offering

period, which allows the eligible employees to purchase shares of the Company’s common stock at the end of the offering period.

Each offering period under the 2023 ESPP is for six months, which can be modified from time-to-time.

Subject to limitations, each

participant will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll

deductions for the offering period by the applicable purchase price, which is equal to 85 percent of the fair market

value of our common stock at the beginning or end of each offering period, whichever is less.

A participant must designate in his

or her enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase of

stock under the 2023 ESPP, subject to the statutory limit under the Code.

As of March 31, 2026, 159 shares were available for future

sales under the 2023 ESPP and 1,994,117 shares were available under the 2025 ESPP.

The ESPP Plans are

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

For the three months

ended March 31, 2026 and 2025, $0.1 million and $0, respectively, were expensed.

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 2025 ESPP, were issued.

Research and Development Contracts

The Company has entered

into contracts with various contract research organizations with outstanding commitments aggregating approximately $49.6 million

at March 31, 2026 for future work to be performed.

The 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

Operating leases

At March 31, 2026,

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,

1 unchanged sentence

Included interest

Accounting Policies and Estimates

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

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

The preparation of

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

and expenses.

We evaluate our estimates and judgments on an ongoing basis.

We base our estimates on historical experience and

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

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

Actual results may differ

from these estimates.

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

of our consolidated financial statements.

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

the same period that the revenues are recognized.

Such variable consideration represents chargebacks, rebates, prompt pay and

other sales discounts, and product returns.

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

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

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

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

Adjustments to these estimates to reflect

actual results or updated expectations will be assessed each period.

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

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

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

In addition, estimates

associated with U.S.

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

and Development.

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

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

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

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

estimate our research and development accrued expenses.

Our clinical trial accrual process is designed to account for expenses

resulting from our obligations under contracts with vendors, consultants and clinical research organizations and clinical site

agreements in connection with conducting clinical trials.

The financial terms of these contracts are subject to negotiations,

which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services

are provided to us under such contracts.

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

progression and the timing of various aspects of the trial.

We determine accrual estimates that take into account discussions

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

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

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

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

organizations and other third-party vendors.

Compensation.

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

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

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

In addition, for awards that vest immediately

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

Instruments and Warrant Liabilities.

The Company evaluates all of its financial instruments, including issued warrants to purchase

common stock under ASC 815 – Derivatives and Hedging, to determine if such instruments are derivatives or contain features

that qualify as embedded derivatives.

For derivative financial instruments that are accounted for as liabilities, the derivative

instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value

reported in the consolidated statements of operations.

The Company uses the Black-Scholes option pricing model to value the derivative

instruments at inception and subsequent valuation dates, which is adjusted for instrument-specific terms as applicable.

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

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

In such a case, the Company has adopted a

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

of its contracts at issuance and at each subsequent reporting date.

If reclassification of contracts between equity and assets

or liabilities is necessary, the Company first allocates remaining authorized shares to equity on the basis of the earliest issuance

Critical Accounting Policies and Estimates

Our discussion and

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

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

The preparation of these financial statements

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

We evaluate our

estimates and judgments on an ongoing basis.

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

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

assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates.

We believe the following

critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial

Revenue Recognition.

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

that the revenues are recognized.

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

and product returns.

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

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

Adjustments to these estimates to reflect actual results or updated expectations

will be assessed each period.

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

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

The potential of our estimates to vary differs by

program, product, type of customer and geographic location.

In addition, estimates associated with U.S.

Medicare and Medicaid governmental

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

Research and Development.

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

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

The value ascribed to patents

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

development projects and had no alternative future uses.

We estimate our research

and development accrued expenses.

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

under contracts with vendors, consultants and clinical research organizations and clinical site agreements in connection with conducting

clinical trials.

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

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

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

aspects of the trial.

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

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

During the course of a clinical trial,

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

We make estimates of our accrued expenses

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

Our clinical trial accruals and prepaid

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

Stock-Based Compensation.

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

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

as compensation expense over the relevant vesting period.

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

the measurement date is the date the award is issued.

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.

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

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

the consolidated statements of operations.

The Company uses the Black-Scholes option pricing model to value the derivative instruments

at inception and subsequent valuation dates, which is adjusted for instrument-specific terms as applicable.

From time to time,

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

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

In such a case, the Company has adopted a sequencing

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

its contracts at issuance and at each subsequent reporting date.

If reclassification of contracts between equity and assets or

liabilities is necessary, the Company first allocates remaining authorized shares to equity on the basis of the earliest issuance

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

of identical issuance dates, shares are then allocated to equity beginning with instruments with the latest maturity date first.

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

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

variable interest in an unconsolidated entity.

Other than contractual

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

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

interest in an unconsolidated entity.

Adopted Accounting Pronouncements

November 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose disaggregated

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

standard is effective for fiscal years beginning after December 15, 2024 on a prospective basis.

The Company discloses its income

tax rate reconciliation in its annual consolidated financial statements only and does not expect the adoption to have a material

impact on its consolidated financial statements.

In July 2025, the Financial

Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2025-05, Financial Instruments—Credit

Losses (Topic 326):

Measurement of Credit Losses for Accounts Receivable and Contract Assets , which provides guidance for estimating

credit losses under the current expected credit losses (CECL) model for current accounts receivable and current contract assets arising

from transactions accounted for under Accounting Standards Codification 606.

We have adopted this ASU on a prospective basis, and it did

not have a material impact on our consolidated financial statements and related disclosures.

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

consolidate financial statements, including the impact of the financial estimates and the assumptions used.

This new rule will

first be effective in the Company’s disclosures for the year ending December 31, 2027.

The Company is in the process of

assessing the impact on our consolidated financial statements and disclosures.

November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation

Disclosures, to improve transparency in financial reporting by requiring entities to present more detailed information about

the nature of expenses included within the Income Statement.

The guidance will first be effective for annual reporting periods

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

In December 2025, the FASB issued ASU 2025-10, Government Grants

The amendments in this ASU establish the accounting for a government grant received by a business entity, including guidance

for (1) a grant related to an asset and (2) a grant related to income.

The amendments in this ASU are effective annual reporting periods

beginning after December 15, 2028, and interim reporting periods within those annual reporting periods.

Early adoption is permitted.

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

3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Company is currently evaluating the impact of ASU 2025-10 on our consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill

and Other—Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Software.

amends the existing standard to remove all references to software development project stages and requires entities to start capitalizing

software costs when both of the following occur:

(i) management has authorized and committed to funding the software project and (ii)

it is probable that the project will be completed and the software will be used to perform the function intended.

This ASU is effective

for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years, with early adoption permitted as of

the beginning of a fiscal year.

The amendments can be applied prospectively, retrospectively, or via a modified prospective transition

We are evaluating the impact of adoption on our consolidated financial statements and related disclosures.

In November 2024, the

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

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

within the Income Statement.

The guidance will first be effective for annual reporting periods beginning after December 15, 2026, and

interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is in the process of assessing

the impact of ASU 2024-03 on our financial statements.

ITEM 3 – QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Not applicable.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis