Tonix Pharmaceuticals Holding Corp. (TNXP)

ITEM
7 – 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. 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 and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under
“Risk Factors.”.

We are a fully-integrated biopharmaceutical company focused on transforming
therapies for pain management and vaccines for public health challenges. Our development portfolio is focused on central nervous system
(CNS) disorders. Our priority is to advance TNX-102 SL, a product candidate for the management of fibromyalgia, for which an NDA was submitted
based on two statistically significant Phase 3 studies for the management of fibromyalgia and for which a PDUFA (Prescription Drug User
Fee act) goal date of August 15, 2025 has been assigned for a decision on marketing authorization. The FDA has also granted Fast Track
designation to TNX-102 SL for the management of fibromyalgia. TNX-102 SL is also being developed to treat acute stress reaction and acute
stress disorder under a Physician-Initiated IND at the University of North Carolina in the OASIS study funded by the U.S. Department of
Defense (DoD). Tonix’s CNS portfolio includes TNX-1300 (cocaine esterase), a biologic in Phase 2 development designed to treat cocaine
intoxication that has FDA Breakthrough Therapy designation, and its development is supported by a grant from the National Institute on
Drug Abuse. Tonix’s immunology development portfolio consists of biologics to address organ transplant rejection, autoimmunity and
cancer, including TNX-1500, which is an Fc-modified humanized monoclonal antibody targeting CD40-ligand (CD40L or CD154) being developed
for the prevention of allograft rejection and for the treatment of autoimmune diseases. Tonix also has product candidates in development
in infectious disease, including a vaccine for mpox, TNX-801. We 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.
We own and operate a state-of-the art infectious disease research facility in Frederick, Maryland. 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.

Our
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. All other marks are the property of their respective owners.
We are led by a management team with significant industry experience in drug development.

We
complement our management team with a network of scientific, clinical, and regulatory advisors that includes recognized experts
in their respective fields.

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Results
of Operations

We
anticipate that 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. Since the acquisition
of Zembrace and Tosymra on June 30, 2023, we are now reporting product revenue and related costs.

Fiscal
year Ended December 31, 2024 Compared to Fiscal year Ended December 31, 2023

The
following table sets forth our operating expenses for the fiscal years ended December 31, 2024 and 2023 (in thousands):

Revenues. The
Company recognized revenue beginning in the year ended December 31, 2023, as a result of the acquisition of two marketed products.
See discussion at Note 11 to our financial statements appearing in this Annual Report on Form 10-K. Revenue recognized for the
year ended December 31, 2024 and 2023 was $10.1 and $7.8 million, respectively.

The
Company’s net product revenues are summarized below:

Cost of
Sales. The Company recognized cost of sales beginning in the year ended December 31, 2023 as a result of the acquisition of
Zembrace and Tosymra from Upsher-Smith Laboratories (“Upsher Smith”). See discussion at Note 11 to our financial
statements appearing in this Annual Report on Form 10-K. Cost of goods sold during the year ended December 31, 2024, was $7.8
million, including write-downs related to Tosymra and Zembrace finished goods inventory of approximately $1.5 million based on an
assessment of inventory on hand and projected sales prior to the respective expiration dates. Cost of sales recognized for the year
ended December 31, 2023, was $4.7 million.

Research
and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2024, were $40.0
million, a decrease of $46.7 million, or 54%, from $86.7 million for the fiscal year ended December 31, 2023. This decrease is
predominately due to decreased clinical expenses of $18.8 million, non-clinical expenses of $10.5 million, manufacturing expenses
of $3.1 million as a result of fewer trials in the clinic and pipeline prioritization period over period, employee-related expenses
of $7.1 and lab supplies of $4.1 million due to a reduction in expenditures, predominately as a result of the decommission of the ADC and reduction in force earlier in 2024.

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In
August 2022, we received a Cooperative Agreement grant from the National Institute on Drug Abuse (“NIDA”), part of
the National Institutes of Health, to support the development of its TNX-1300 product candidate for the treatment of cocaine intoxication.
During the year ended December 31, 2024 and 2023, we recorded $1.6 and $2.9 million, respectively in funding as a reduction of
related research and development expenses.

The
table below summarizes our direct research and development expenses for our product candidates and development platform for the
years ended December 31, 2024, and 2023.

Our
direct research and development expenses consist principally of external costs for clinical, nonclinical, and manufacturing, such
as fees paid to contractors, consultants and CROs in connection with our development work. Included in “Internal Staffing,
Overhead and Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel,
regulatory and legal.

Selling,
General and Administrative Expenses. Selling, General and administrative expenses for the fiscal year ended December
31, 2024, were $40.1 million, an increase of $5.3 million, or 15%, from $34.8 million incurred in the fiscal year ended December 31,
2023. The increase is primarily due to an increase in financial reporting expenses of $1.2 million, related to the special
shareholder meetings in 2024, an increase in sales and marketing of $1.2 million, an increase in professional fees of $2.7 million,
an increase in depreciation of property and equipment of $0.4 million and an increase in fees and permits of $0.4 million, related
to licenses obtained to sell the migraine products, offset by a decrease in employee-related costs of $1.0 million, due to fewer employees.

Asset
impairment charges. We recognized a non-cash impairment charge of $48.8 million related to property and equipment, a non-cash
impairment of $1.0 million related to goodwill, and a non-cash impairment charge of $9.2 million related to intangible assets,
which is reflected in asset impairment charges in the consolidated statements of operations for the year ended December 31, 2024.

The
impairment of the Tosymra and Zembrace inventory, intangibles and goodwill was driven by our delayed investment in the sales personnel
required to drive growth in the business as we 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 pending FDA approval for which we expect an FDA decision in 2025.

Net
Loss. As a result of the foregoing, the net loss for the year ended December 31, 2024, was $130.0 million, compared to
a net loss of $116.7 million for the year ended December 31, 2023.

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License
Agreements

On
February 13, 2023, we exercised an option to obtain an exclusive license from Columbia University (“Columbia”) for
the development of a portfolio of fully human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including
our TNX-3600 and TNX-4100 product candidates, respectively. The licensed mAbs were developed as part of a research collaboration
and option agreement between us and Columbia. As of December 31, 2024, other than the upfront fee, 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 (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.

Additionally,
in connection with the acquisition from Upsher Smith, we and Upsher Smith entered into a transition services agreement pursuant
to which Upsher Smith agreed to provide certain transition services to us for base fees equal to $100,000 per month for the first
six months, and $150,000 per month for the seventh through ninth months, plus additional monthly fees for each service category
totaling up to $150,000 per month. We have signed an amendment to the transitional services agreement with Upsher Smith so that
Upsher Smith will continue to manage certain government rebates, and Upsher Smith will be reimbursed by us at cost for any rebates
they pay on our behalf.

As
the assets acquired from Upsher Smith met the definition of a business under the current accounting guidance, the total purchase
price was allocated to the acquired inventory and other tangible assets, and the developed technology intangible assets related
to Zembrace and Tosymra based on their estimated fair values on the acquisition date. The excess of the purchase price over the
fair value of the acquired assets was recorded as goodwill.

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. as follows: for Tosymra, 4% for net sales of $0 to $30 million, 7% of net sales of $30 to $75 million;
9% for net sales of $75 to $100 million; 12% for net sales of $100 to $150 million; and 15% for net sales greater than $150 million.
Royalty payments with respect to Tosymra are payable until the expiration or termination of the product’s Orange Book listed
patent(s) with respect to the United States or, outside the United States, the expiration of the last valid claim covering the
product in the relevant country of the territory. For Zembrace, royalty payments on annual net sales in the U.S. are 3% for net
sales of $0 to $30 million, 6% of net sales of $30 to $75 million; 12% for net sales of $75 to $100 million; 16% for net sales
of greater than $100 million. Such royalty payments are payable until July 19, 2025. Upon the entry of a generic version of the
relevant product, the applicable royalty rates will be reduced by 90% percent for Zembrace, and by 66.7% percent 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.

On
February 2, 2023, we entered into an asset purchase agreement with Healion Bio Inc., pursuant
to which we acquired all the pre-clinical infectious disease assets of Healion for $1.2 million. Because the Healion intellectual
property was acquired prior to FDA approval, the $1.2 million cash consideration was expensed as research and development costs
since there is no alternative future use and the acquired intellectual property does not constitute a business.

Liquidity
and Capital Resources

As of December 31, 2024, we had working capital of $100.7 million, comprised
primarily of cash and cash equivalents of $98.8 million, accounts receivable, net of $3.7 million, inventory of $8.4 million, and prepaid
expenses and other of $8.1 million, offset by $4.5 million of accounts payable, $10.7 million of accrued expenses and other current liabilities,
$2.8 million of term loan payable, short term and $0.3 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.

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The
following table provides a summary of operating, investing, and financing cash flows for the years ended December 31, 2024, and
2023, respectively (in thousands):

For
the years ended December 31, 2024, and 2023, we used approximately $60.9 million and $102.0 million of cash in operating activities,
respectively, which represents cash outlays for research and development and general and administrative expenses in such periods.
The decrease in cash outlays principally resulted from a decrease in research and development expense.

Cash
used by investing activities for the year ended December 31, 2024, was approximately $0.1 million related to the purchase of property
and equipment. Cash used by investing activities for the year ended December 31, 2023, was approximately $29.1 million related
to the purchase of Zembrace and Tosymra assets and property and equipment.

For
the year ended December 31, 2024, net proceeds from financing activities were $134.9 million, primarily related to the sale of
common stock and warrants. For the year ended December 31, 2023, net proceeds from financing activities were $36.5 million, predominately
from the sale of our common stock and warrants; and debt raised which was offset by repurchase of common stock.

We
believe that our cash resources at December 31, 2024 and the proceeds that we raised from equity offerings in the first quarter
of 2025, will meet our operating and capital expenditure requirements into the first quarter of 2026, but not beyond.

We
continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more
rapidly than currently expected due to changes we may make in our research and development spending plans. These factors raise
substantial doubt about our ability to continue as a going concern for the one-year period from the date of filing of this Form
10-K. 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 occurs, 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.
We will not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product
candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability
of financing and our success in developing markets for our product candidates.

We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include
the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to
raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts
owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common stock.

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If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise
seek to develop or commercialize independently.

2024
At-the-Market Offering

On
July 30, 2024, we entered into a Sales Agreement with AGP pursuant to which we may issue and sell, from time to time, shares of
our common stock having an aggregate offering price of up to $250.0 million in the ATM. AGP will act as sales agent and will be
paid a 3% commission on each sale under the Sales Agreement. Our common stock will be sold at prevailing market prices at the
time of the sale, and, as a result, prices will vary. During the year ended December 31, 2024, we sold approximately 4.2 million
shares of common stock under the Sales Agreement, for net proceeds of approximately $128.4 million. Subsequent to December 31,
2024, we sold 2.3 million shares of common stock under the Sales Agreement, for net proceeds of approximately $46.3 million.

July
2024 Financing

On
July 9, 2024, we entered into a securities purchase agreement with certain institutional and retail investors, pursuant to which
we sold 33,936 shares of common stock and pre-funded warrants to purchase up to 37,032 shares of common stock. The offering price
per share of common stock was $57.00, and the offering price per share of pre-funded warrant was $56.99.

The
offering closed on July 10, 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.

June
2024 Financings

On
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.

The 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.

On
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.

The offering closed on June 28, 2024. We incurred offering expenses of
approximately $0.6 million, including placement agent fees of approximately $0.3 million. We received net proceeds of approximately $3.4
million, after deducting the underwriting discount and other offering expenses.

March
2024 Financing

On
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,
2024. The offering price per share of common stock was $960.00 and the offering price per share of pre-funded warrants was $959.68.

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We
incurred offering expenses of approximately $0.5 million, including placement agent fees of approximately $0.3 million. We received
net proceeds of approximately $3.9 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 on May 22, 2024, the termination date for the warrants issued August 2023 (the “August Warrants”)
to purchase up to an aggregate of 2,172 shares was amended to April 1, 2029; 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 we to the Series
C Warrant holder of our public announcement of the FDA’s acknowledgement and acceptance of our NDA relating to TNX-102 SL
in patients with Fibromyalgia; the termination date for Series D Warrants to purchase up to an aggregate of approximately 10,884
shares is April 1, 2029. The other terms of the Existing Warrants will remain unchanged. On May 22, 2024, at the annual meeting
of stockholders, our stockholders approved the proposal to amend the exercise prices of the Existing Warrants to $1,056.00 per
share and extend the expiration dates.

December
2023 Financing

On
December 20, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional
investors, pursuant to which we sold and issued (i) 7,920 shares of our 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 us. At the closing of the offering, 2,034 Pre-Funded Warrants were immediately exercised into shares of common
stock for nominal proceeds.

The Pre-Funded Warrants have an exercise price of $0.32 per share,
were immediately exercisable subject to certain ownership limitations, and can be exercised at any time until exercised in full. The Series
C Warrants have an exercise price of $1,776.00 per share, and were exercisable on the later of approval by our stockholders of (i) a proposal
to approve the filing of an amendment to our Articles of Incorporation, increasing the number of authorized shares of common stock from
160,000,000 to 1,000,000,000 and (ii) a proposal to allow the Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635
(the later of such events, the “Approval Date”) and initially expired on the later of (a) 10 trading days following the Approval
Date and (b) the earlier of (x) the two year anniversary of the Approval Date and (y) 10 trading days following the public announcement
of the U.S. Food and Drug Administration’s (“FDA”) acknowledgement and acceptance of the New Drug Application (“NDA”)
relating to the Company’s TNX-102 SL product candidate in patients with fibromyalgia. The Series D Warrants have an exercise price
of $2,720.00 per share and were exercisable beginning on the Approval Date through the five-year anniversary of the Approval Date.

Upon the closing of the offering, we determined that certain of the Common
Warrants did not meet the criteria for equity classification due to the lack of sufficient authorized and unissued shares to settle the
instruments. The Company has adopted a sequencing approach under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own
Equity to determine the classification of its contracts at issuance and at each subsequent reporting date, whereby shares are allocated
based on the earliest issuance date of potentially dilutive instruments, with the earliest issuance date receiving the first allocation
of shares. In the event of identical issuance dates, shares are then allocated beginning with instruments with the latest maturity date
first. Pursuant to this sequencing approach, we 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.

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The
$30.0 million in gross proceeds received by us were first allocated to the Series C Warrants and the liability-classified Series
D Warrants at their respective fair values, and the residual proceeds were allocated between the shares of common stock, the Pre-Funded
Warrants, and the equity-classified Series D Warrants on a relative fair value basis. The issuance costs were allocated between
the equity and liability-classified instruments on a relative fair value basis, resulting in issuance costs of $1.4 million recognized
as a discount to the equity-classified instruments, and $0.9 million allocated to the liability-classified instruments and immediately
expensed within Selling, general and administrative expense on the consolidated statements of operations.

On
January 25, 2024, the date our stockholders approved the proposal to file an amendment to the Company’s Articles of Incorporation
to increase the number of 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.

September
2023 Financing

On September 28, 2023, we
sold 1,266 shares of common stock; pre-funded warrants to purchase up to 1,549 shares of common stock, and accompanying Series A warrants
to purchase up to 2,813 shares of common stock with an exercise price of $1,600.00 per share and expiring five years from date of issuance,
and Series B warrants to purchase up to 2,813 shares of common stock with an exercise price of $1,600.00 per share and expiring one year
from date of issuance in a public offering, which closed on October 3, 2023. The offering price per share of common stock and accompanying
warrants was $1,600.00, and the offering price per share of pre-funded warrant and accompanying warrants was $1,599.68.

We
incurred offering expenses of approximately $0.5 million, including placement agent fees of approximately $0.3 million. We received
net proceeds of approximately $4.0 million, after deducting the underwriting discount and other offering expenses.

July
2023 Financing

On
July 27, 2023, we 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.

We
incurred offering expenses of approximately $0.7 million, including placement agent fees of approximately $0.5 million. We received
net proceeds of approximately $6.3 million, after deducting the underwriting discount and other offering expenses.

2020
At-the-Market Offerings

On
April 8, 2020, we entered into a sales agreement with AGP pursuant to which we may issue and sell shares of our 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, we sold approximately 322 shares of common stock under the Sales Agreement, for net proceeds of approximately
$3.0 million.

Share
Repurchase Program

In
September 2024, the Board of Directors approved a 2024 share repurchase program pursuant
to which we may repurchase up to $10.0 million in value of our 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,
we repurchased 250,000 of shares of our 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.

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During
the first quarter of 2023, we repurchased 786 of our shares of common stock outstanding under the 2022 share repurchase program
for $12.5 million at prices ranging from $8,800.00 to $27,552.00 per share for a gross aggregate cost of approximately $12.5 million.
In addition, we incurred expenses of $0.3 million.

In
January 2023, the Board of Directors approved a 2023 share repurchase program pursuant
to which we may repurchase up to an additional $12.5 million in value of our outstanding common stock from time to time
on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. During
the first quarter of 2023, we repurchased 50 of our shares of common stock outstanding
under the new 2023 share repurchase program at $22,784 per share for a gross aggregate cost of $1.1 million.

Debt
Financing

On
December 8, 2023, we executed a Loan and Guaranty Agreement (the “Loan Agreement”) to issue a 36-month term loan (the
“Term Loan”) in the 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,
we deposited into a reserve account $1.8 million to be used exclusively to fund interest payments related to the Term Loan. The
deposit is reflected as prepaid and other current assets on the consolidated balance sheet.

Commencing
on March 8, 2024 and continuing monthly through the Maturity Date, the outstanding principal will be due and payable in monthly
installments of $0.2 million, with the final remaining balance of unpaid principal and interest due and payable on the Maturity
Date. In addition, we 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. We 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 us, which among other things, will require us to provide
certain financial reports to the lenders, to maintain a deposit account to fund interest payments, and limit the ability of us
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. Our obligations 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 our R&D Center in Frederick, Maryland, the Advanced Development Center in North Dartmouth, Massachusetts,
and substantially all of the relevant deposit accounts.

As
of December 31, 2024, the carrying amount of the Term Loan approximated its fair value as the contractual interest rate for the
Term Loan was representative of the then market interest rate.

During
the first quarter of 2025, we paid $9.6 million as a result of a pay-off of the above-mentioned loan. The pay-off amount paid
by us 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.

Stock
Compensation

On
May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan
(“Amended and Restated 2020 Plan”).

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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” providing for an annual increase in the number of shares of our common stock available for issuance under the
Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021 and ending on
(and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number of
shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares
of common stock reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year
(including shares subject to outstanding awards, issued pursuant to awards or available for future awards). The Board of Directors
determines the exercise price, vesting and expiration period of the grants under the Amended and Restated 2020 Plan. However,
the exercise price of an incentive stock option may not be less than 110% of fair value of the common stock at the date of the
grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common
stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good
faith. Additionally, the expiration period of grants under the Amended and Restated 2020 Plan may not be more than ten years.
As of December 31, 2024, no options were available for future grants under the Amended and Restated 2020 Plan.

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 1/36th each month thereafter for 24 months and expire ten years from the date of grant. In addition,
the Company issues options to directors which vest over a one-year period. The Company also issues premium options to executive
officers which have an exercise price greater than the grant date fair value and has issued performance-based options which vest
when target parameters are met or probable of being met, subject in each case to a one year minimum service period prior to vesting.
Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line method.

The
risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of
the options as of the grant date. The expected term of options is determined using the simplified method, as provided in
an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on the Company’ historical stock
price volatility.

The
weighted average fair value of options granted during the year ended December 31, 2024, was $868.00 per share. The weighted average
fair value of options granted during the year ended December 31, 2023, was $12,768.00 per share.

Stock-based
compensation expense relating to options granted of $4.8 million, of which $3.4 million and $1.4 million, related to General and
Administration and Research and Development, respectively was recognized for the year ended December 31, 2024. Stock-based compensation
expense relating to options granted of $9.3 million, of which $6.4 million and $2.9 million, related to General and Administration
and Research and Development, respectively was recognized for the year ended December 31, 2023.

As
of December 31, 2024, the Company had approximately $3.4 million of total unrecognized compensation cost related to non-vested
awards granted under the Plans, which the Company expects to recognize over a weighted average period of 1.57 years.

Employee
Stock Purchase Plan

On
May 6, 2022, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2022 Employee Stock Purchase Plan. (the “2022
ESPP”), which was replaced by the Tonix Pharmaceuticals Holdings Corp. 2023 Employee Stock Purchase Plan (the “2023
ESPP”, and together with the 2022 ESPP, the “ESPP Plans”), which was approved by our stockholders on May 5,
2023.

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The
2023 ESPP allows eligible employees to purchase up to an aggregate of 250 shares of our common stock. Under the 2023
ESPP, on the first day of each offering period, each 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 2023 ESPP is for six months, which can be modified from time-to-time. Subject to limitations, each
participant will be permitted to purchase a number of shares determined by dividing the employee’s accumulated payroll
deductions for the offering period by the applicable purchase price, which is equal to 85 percent of the fair market
value of our common stock at the beginning or end of each offering period, whichever is less. A participant must designate in
his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase
of stock under the 2023 ESPP, subject to the statutory limit under the Code. As of December 31, 2024, 159 shares were available
for future sales under the 2023 ESPP.

The
ESPP Plans are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For
the year ended December 31, 2024 and 2023, $27,000 and $34,000, respectively, was expensed. In January 2023, 5 shares that were
purchased as of December 31, 2022, under the 2022 ESPP, were issued. Accordingly, during the first quarter of 2023, approximately
$29,000 of employee payroll deductions accumulated at December 31, 2022, related to acquiring such shares, was transferred from
accrued expenses to additional paid in capital. The remaining $14,000 was returned to the employees. As of December 31, 2023,
approximately $44,000 of employee payroll deductions had accumulated and had been recorded in accrued expenses. In January
2024, 21 shares that were purchased as of December 31, 2023, under the 2022 ESPP, were issued. Accordingly, during the first quarter
of 2024, approximately $24,000 of employee payroll deductions accumulated at December 31, 2023, related to acquiring such shares,
was transferred from accrued expenses to additional paid in capital. The remaining $20,000 was returned to the employees. As of
June 30, 2024, approximately $33,000 of employee payroll deductions had accumulated and had been recorded in accrued expenses. In
July 2024, 70 shares that were purchased as of June 30, 2024, under the 2022 ESPP, were issued. Accordingly, during the third
quarter of 2024, approximately $4,000 of employee payroll deductions accumulated at June 30, 2024, related to acquiring such shares,
was transferred from accrued expenses to additional paid in capital. The remaining $29,000 was returned to the employees.

Commitments

Research
and Development Contracts

We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately
$12.7 million at December 31, 2024 for future work to be performed.

Operating
leases

As
of December 31, 2024, future minimum lease payments are as follows (in thousands):

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.

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We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our consolidated financial statements.

Business
Combinations. We apply the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring
entity recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. We use
our best estimates and assumptions to estimate the fair values of these tangible and intangible assets. Any excess of the purchase
price over amounts allocated to the assets acquired is recorded as goodwill. The acquired intangible assets are amortized using
the straight-line method over the estimated useful lives of the respective assets. 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.

Asset
impairment charges. We test certain assets for impairment, including goodwill, indefinite-lived intangibles, long-lived assets
and amortizing intangibles. Goodwill is reviewed for impairment by comparing the carrying value of a reporting unit to its fair
value on an annual basis as of June 30, or more frequently if events or changes in circumstances indicate that the carrying amount
of goodwill may be impaired. We evaluate long-lived assets for impairment, including property and equipment and finite-lived intangibles
assets whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors
and circumstances exist, we compare 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.

We completed the required annual impairment test for goodwill as of
June 30, 2024, primarily using an income approach or discounted cash flow analysis. Additionally, due to a sustained decline in revenues
and continued delays in building out the sales team for our commercialized products, we also tested the commercialized products asset
group for recoverability as of June 30, 2024, and determined that the carrying value was not recoverable and therefore estimated the fair
value of the asset group using a discounted cash flow analysis. The significant assumptions used in the discounted cash flow model included
revenue growth, long-term growth rate, and discounts rate. The impairment assessments resulted in full non-cash impairment of $965,000
of goodwill and $9.2 million, consisting of $6.2 million and $3.0 million for the Zembrace and Tosymra developed technology, intangible
assets, which are reflected in asset impairment charges in the consolidated statements of operations for the year ended December 31, 2024.

During the second quarter
of 2024, we identified certain triggering events related to the ADC 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. We engaged independent appraisers to
value the building and land, using sales comparison and income capitalization approaches, and the related equipment using a indirect cost
approach and market approach. The assessments resulted in 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.

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. We began
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. 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.

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Research
and Development. We outsource certain of our research and development efforts and expense the related costs as incurred, including
the cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials.
The value ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related
to particular research and development projects and had no alternative future uses.

We
estimate our 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.

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 is 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.

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

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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.

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.

Recently Adopted Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures,
which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment
expenses. Effective January 1, 2024, the Company adopted the new standard on a retrospective basis for annual periods, and interim periods
beginning for the first quarter of 2025. The Company does not believe the impact of the new guidance and related codification improvements
had a material impact to its financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In
December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information
about our effective tax rate reconciliation as well as information on income taxes paid. The guidance will first be effective
in our annual disclosures for the year ending December 31, 2025, and should be applied on a prospective basis with the option
to apply retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-09 on
our disclosures.

In
March 2024, the SEC adopted new rules relating to the disclosure of a range of climate-change-related physical and transition
risks, data, and opportunities. The adopted rule contains several new disclosure obligations, including, (i) disclosure on how
the board of directors and management oversee climate-related risks and certain climate-related governance items, (ii) disclosure
of information related to a registrant’s climate-related targets, goals, and/or transition plans, and (iii) disclosure on
whether and how climate-related events and transition activities impact line items above a threshold amount on a registrant’s
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.

In
November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation
Disclosures, to improve transparency in financial reporting by requiring entities to present more detailed information about
the nature of expenses included within the Income Statement. The guidance will first be effective for annual reporting periods
beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted.
The Company is in the process of assessing the impact of ASU 2024-03 on our disclosures.

ITEM
7 – 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. 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 and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under
“Risk Factors.”.

We are a fully-integrated
biopharmaceutical company focused on developing and commercializing therapeutics to treat and prevent human disease and alleviate suffering.

Our near-term priority is
to submit a New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for TonmyaTM*
(also known as TNX-102 SL, cyclobenzaprine HCl sublingual tablet) for the management of fibromyalgia (“FM”).
FM is a chronic pain disorder characterized by chronic widespread pain, non-restorative sleep, fatigue and impaired cognition. Tonmya
is a non-opioid analgesic designed for long-term bedtime use and has completed two positive Phase 3 studies. Tonix announced the positive
results of the second Phase 3 study in December of 2023. Tonmya treatment resulted in highly statistically significant improvement in
the primary endpoint of pain reduction (p=0.00005) and statistical significance in all six of the key secondary endpoints. Tonmya was
well tolerated. Systemic adverse events were similar between Tonmya and placebo. No serious adverse events were reported. The FDA conditionally
accepted Tonmya as the trade name for TNX-102 SL for the management of fibromyalgia in January 2024. We have scheduled a type B pre-NDA
meeting with the FDA in the first half of 2024, plan to submit an NDA for the approval of Tonmya in the second half of 2024 and expect
an FDA decision on the NDA in the second half of 2025. We are preparing for a commercial launch of Tonmya conditional on FDA approval.

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Tonmya is a proprietary sublingual
tablet formulation of cyclobenzaprine (“CBP”) designed for bedtime administration. In December 2020, we reported positive
results from the Phase 3 RELIEF study of Tonmya 5.6 mg for the management of FM. In July 2021, we had disappointing results from a second
Phase 3 study, RALLY. In December 2023, we reported positive results from the third Phase 3 RESILIENT study, which met its pre-specified
endpoint by significantly reducing daily pain compared to placebo in patients with fibromyalgia.

In preparation for the launch
of Tonmya, we have built a team of professionals to market and distribute our products. Our commercial portfolio consists of two FDA-approved
prescription products for the treatment of migraine which were acquired from Upsher-Smith Laboratories (“Upsher Smith”) in June 2023:
Zembrace® SymTouch® (sumatriptan injection) 3 mg and Tosymra® (sumatriptan nasal spray) 10
mg. Zembrace SymTouch and Tosymra are both indicated for the treatment of acute migraine with or without aura in adults. Zembrace SymTouch
is the only branded sumatriptan autoinjector professionally promoted in the United States and is designed for ease of use and favorable
tolerability with a low 3 mg dose. Tosymra is a novel intranasal sumatriptan product formulated with a permeation enhancer that provides
rapid and efficient absorption of sumatriptan. Tosymra was approved on the basis of bioequivalence to subcutaneous (s.c.) sumatriptan.
Our commercial team is engaged in marketing and distributing our products, and also engaged in planning the launch of Tonmya.

In addition to Tonmya and
our marketed products, we have a pipeline of products in development that include therapeutics and vaccines which are based on small molecules
and biologics. Our pipeline has been generated from internal discovery, as well as licenses, acquisitions and collaborations with academic
institutions and non-profit organizations.

Our portfolio is focused on
central nervous system, or CNS, disorders, but also consists of rare disease, immunology, and infectious disease product candidates. The
CNS portfolio includes small molecules and biologics to treat pain, neurologic, psychiatric and addiction conditions. Our immunology portfolio
includes TNX-1500*, a biologic to address organ transplant rejection and autoimmune diseases. Finally, our infectious disease portfolio
includes a vaccine in development to prevent smallpox and mpox (formerly known as monkeypox), TNX-801*. TNX-801 also serves as the live
virus vaccine platform or recombinant pox vaccine (“RPV”) platform for vaccines to protect against other infectious diseases,
including TNX-1800* and TNX-1850* for COVID-19.

In addition to fibromyalgia,
TNX-102 SL* is being developed as a potential treatment for a type of Long COVID, the symptoms of which overlap with fibromyalgia, that
we term fibromyalgia-type Long COVID. TNX-102 SL has completed a Phase 2 proof-of-concept study. Long COVID also known as PASC, (post-acute
sequelae of SARS-CoV-2 infection) is a chronic post-acute COVID-19 condition. We initiated enrollment in the Phase 2 PREVAIL study, in
August 2022, and topline results were reported in September 2023. The study did not meet the primary endpoint of change in mean pain from
baseline but did show activity in improving fatigue, a hallmark symptom of Long COVID.

TNX-102 SL also is being developed also as a treatment for acute stress reaction
(“ASR”) and to prevent acute stress disorder (“ASD”) and posttraumatic stress disorder (“PTSD”) under an investigator-initiated
Investigational New Drug Application (“IND”) in partnership with the University of North Carolina (“UNC”) Institute
for Trauma Recovery. The Phase 2 OASIS study at UNC is supported by the U.S. Department of Defense (“DoD”). We expect enrollment
in the OASIS study to begin in the second quarter of 2024. The UNC-led OASIS study will build upon the existing AURORA initiative, a major
national research initiative to improve the understanding, prevention, and recovery of individuals who have experienced a traumatic event.

In addition, TNX-102 SL has active INDs for PTSD, agitation in Alzheimer’s
disease (“AAD”), and alcohol use disorder (“AUD”). TNX-102 SL for AAD has been granted Fast Track designation
by the FDA. We are not currently actively studying TNX-102 SL in PTSD, AAD or AUD.

Another CNS candidate in 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.
TNX-1300 was licensed from Columbia University in 2019 after a Phase 2 study showed that it rapidly and efficiently disintegrates cocaine
in the blood of volunteers who received intravenous cocaine. In August of 2022, we received a Federal Grant from the National Institute
on Drug Abuse (“NIDA”) to advance the development of TNX-1300 as a treatment for cocaine intoxication. We expect to initiate
enrollment in a potentially pivotal Phase 2 study of TNX-1300 in emergency rooms in the second quarter of 2024.

Our rare disease
portfolio includes TNX-2900* (intranasal potentiated oxytocin) for Prader-Willi syndrome (“PWS”), a genetic disorder characterized by
complex symptoms. The formulation technology for TNX-2900 was acquired from Trigemina, Inc. and licensed from Stanford University in
2020. The potentiated formulation includes magnesium, which has been shown in animal studies to potentiate binding of oxytocin to
the oxytocin receptor. The therapeutic technology was licensed from Inserm, the French National Institute of Health and Medical
Research. TNX-2900 was granted Orphan-Drug Designation by the FDA in the second half of 2023 and the IND was cleared by the FDA in
the fourth quarter of 2023 and Rare Pediatric Disease Designation was granted in March 2024. PWS, an orphan condition, is a rare
genetic disorder of failure to thrive in infancy, associated with uncontrolled appetite beginning in childhood with complications of
obesity and diabetes. We have sponsored a research program at Inserm to study oxytocin on suckling behavior in mice that have been
engineered to express one of the PWS genes.

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We are developing a different intranasal oxytocin product, TNX-1900* (intranasal
potentiated oxytocin with magnesium) for several CNS disorders through investigator-initiated studies. TNX-1900 is in development through
investigator-initiated studies for the treatment of BED, adolescent obesity, social anxiety disorder (“SAD”), and bone health
in pediatric autism. We received IND clearance from the FDA in the fourth quarter of 2021 to study TNX-1900 in chronic migraine and we
initiated the Phase 2 PREVENTION study for the prevention of migraine headaches in chronic migraineurs in the first quarter of 2023. Topline
results from the study, reported in December 2023, showed that TNX-1900 did not meet the primary endpoint as measured by a reduction from
28-day run-in baseline in the mean number of migraine headache days during the last 28 days of the treatment phase. PREVENTION was a small
proof-of-concept study with 88 patients enrolled across three arms (TNX-1900 30 IU QD, TNX-1900 30 IU BID, and placebo), and was not powered
to result in a statistically significant outcome. In the trial, TNX-1900 was generally well-tolerated with no treatment-emergent serious
or severe adverse events. We have discontinued development of TNX-1900 in chronic migraine.

Our lead candidate in the immunology pipeline is TNX-1500, an Fc-modified humanized
mAb, directed against CD40-ligand (CD40L, also known as CD154). TNX-1500 was engineered to modulate binding to Fc receptors. TNX-1500
is being developed as a prophylaxis against organ transplant rejection as well as to treat autoimmune conditions. The IND was cleared
and a Phase 1 study of TNX-1500 in healthy volunteers was initiated in the second quarter of 2023 and completed the clinical phase in
the first quarter of 2024. TNX-1500 is being studied in combination with other immunosuppressive agents in allogeneic and xenogeneic organ
transplants in non-human primates at Massachusetts General Hospital, a teaching hospital of Harvard Medical School (“MGH”).
In experiments at MGH, TNX-1500 is being studied as monotherapy or in combination with other immunosuppressive agents in heart and kidney
allogeneic organ transplants in non-human primates. Results from experiments in kidney and heart transplants indicate that TNX-1500 appears
to have comparable efficacy to historical experiments using the chimeric mouse/human IgG1 version (5c8H1) of the anti-CD40L mAb 5c8. Some
results from this collaboration were published in the peer-reviewed journal, American Journal of Transplantation in 2023.

TNX-1500 also is being studied in combination with other immunosuppressive agents
in xenogeneic organ transplants in non-human primates at MGH. In some of these studies, genetically engineered (GE) pigs in baboon transplants
were treated with cold perfused ischemia minimization and a novel costimulation-based immunosuppressive regimen including TNX-1500. The
results of these preclinical studies were encouraging and demonstrated the potential of genetically engineered pig hearts in the context
of a clinically applicable regimen. The multi-GE pigs were provided by eGenesis and Revivicor. Revivicor is a subsidiary of United Therapeutics.
Some results from the collaboration with MGH and eGenesis were published in the peer-reviewed journal, Nature in 2023. In
March of 2024, MGH announced the first GE pig kidney transplant into a living recipient supported in part by the pre-clinical work with
TNX-1500. TNX-1500 therapy was not used in the human transplant recipient.

Our immunology pipeline also includes TNX-1700*, a recombinant Trefoil Factor Family
2 (“rTFF2”) fusion protein that was licensed from Columbia University in 2019. TNX-1700 consists of TFF2 fused to human serum
albumin (HAS) and is a biologic being developed to treat gastric and colorectal cancers by an immune-oncology mechanism, in combination
with PD1 blockers, and is in the preclinical stage of development. We presented data that show a murine version of TNX-1700 consisting
of a fusion protein with murine serum albumin was able to evoke anti-tumor immunity in the MC38 mouse model of colorectal cancer as monotherapy
and that TNX-1700 augmented the efficacy of anti-PD1 therapy in both the MC38 model and the CT26.wt mouse models of colorectal cancer.

Our infectious disease portfolio includes vaccines based on our live virus vaccine
or RPV platform. Live virus vaccines are believed to protect against poor clinical outcomes of infectious diseases by eliciting T cell
responses in addition to antibody responses. TNX-801, a live attenuated vaccine based on synthesized horsepox, is in the pre-IND stage
of development to protect against smallpox and mpox. Mpox has become endemic in the U.S. since it spread in the U.S. and other countries
outside of Africa, mostly in populations of men who have sex with men. Non-human primates vaccinated with TNX-801 were protected from
mpox in studies reported in the first quarter of 2020. These data were published in the peer-reviewed journal Vaccines in 2023.
In October 2023, at the World Vaccine Congress - Europe, we reported that the TNX-801 vaccine was shown to be greater than 10 to 1,000
fold more attenuated than older vaccinia-based smallpox vaccines in both human primary cell lines and immunocompromised mice. That work
has been posted on BioRxiv, which is not peer-reviewed. TNX-801 also serves as the live virus vaccine platform for other infectious
diseases for which subsequent products will be designed by expressing other viral antigens in the horsepox vector.

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TNX-1800 is a live virus vaccine on the
RPV platform that expresses the SARS-CoV-2 spike protein from the ancestral Wuhan strain, which has shown encouraging results in non-human
primates. In the third quarter of 2023, TNX-1800 was selected by the National Institute of Allergy and Infectious Diseases, a part of
the National Institutes of Health, to be included in their Project NextGen initiative, an initiative to advance a pipeline of new, innovative
vaccines and therapeutics for COVID-19. The COVID-19 vaccines approved for use in the U.S. have provided significant health benefits to
the vaccinated population; however, they have shown limitations in the durability of protection conferred and in their ability to block
forward transmission. Live virus vaccines that protect against other viral diseases by eliciting T cell responses have shown durability
of protection that lasts years to decades, and some live virus vaccines have significantly inhibited forward transmission. With respect
to TNX-1800 vaccination, we reported positive efficacy data from animal challenge studies using live SARS-CoV-2 in the first quarter of
2021. These data were published in the peer-reviewed journal Vaccines in 2023. In this study, TNX-1800 vaccinated, SARS-CoV-2 challenged
animals had undetectable SARS-CoV-2 in the upper airways, which we believe relates to potential inhibition of forward transmission of
this respiratory pathogen.

Tonix has three pre-clinical research
and development programs developing broad spectrum antivirals. The DoD announced in December 2022 a plan to move beyond a ‘one bug,
one drug’ approach and are seeking broad-spectrum drugs since it may be hard to predict which or how many viruses may be deployed
on the battlefield. TNX-3900* are broad-spectrum small molecule oral antivirals which inhibit essential cathepsins required by viruses
such as coronaviruses and filoviruses to infect cells. TNX-4200* are orally available CD45 antagonists in preclinical development. We
believe that partial inhibition of CD45 will provide optimal antiviral protection while requiring lower plasma drug concentrations and
a lower dose, and therefore will have a higher safety window. Tonix plans to leverage previous research on phosphatase inhibitors, specifically
compounds that target CD45, to optimize lead compounds for therapeutic intervention of biothreat agents. TNX-4000* are viral glycan-targeted
engineered biologics. These antivirals are currently in preclinical development.

Relating to our development programs, we own and operate the Research and
Development Center (“RDC”) in Frederick, Maryland consisting of one building totaling approximately 48,000 square feet. The
RDC conducts research on CNS, immunology, and infectious disease candidates. The RDC facility is mostly biosafety level 2 (BSL-2), with
some components designated BSL-3. We also own and operate an Advanced Development Center (ADC) located in the New Bedford business park
in Dartmouth, Massachusetts. This approximately 45,000 square foot BSL-2 facility is intended to accelerate development and clinical scale
manufacturing of live-virus vaccines and biologics to support clinical trials. We have engaged CBRE, an international real estate brokerage
firm, to find a strategic partner for, or buyer of, ADC.

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

We are led by a management team with significant industry experience in drug development.
We complement our management team with a network of scientific, clinical, and regulatory advisors that includes recognized experts in
their respective fields.

Results
of Operations

We anticipate that 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. Since the acquisition of Zembrace and Tosymra on June 30, 2023, we are now reporting
product revenue and related costs.

Fiscal
year Ended December 31, 2023 Compared to Fiscal year Ended December 31, 2022

The
following table sets forth our operating expenses for the fiscal years ended December 31, 2023 and 2022 (in thousands):

Revenues. The
Company recognized revenue beginning in the year ended December 31, 2023, as a result of the acquisition of two marketed products.
See discussion at Note 12 to our financial statements appearing in this Annual Report on Form 10-K. Revenue recognized for the
year ended December 31, 2023 was $7.8 million.

The
Company’s net product revenues are summarized below:

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Cost
of Sales. The Company recognized cost of sales beginning in the year ended December 31, 2023 as a result of the
acquisition of Zembrace and Tosymra from Upsher Smith. See discussion at Note 12 to our financial statements appearing in this Annual Report on Form 10-K. Cost of sales
recognized for the year ended December 31, 2023, was $4.7 million.

Research
and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2023, were $86.7
million, an increase of $4.8 million, or 6%, from $81.9 million for the fiscal year ended December 31, 2022. This increase is
predominately due to increased employee-related expenses of $4.3 million, predominately related to new hires at the RDC and ADC,
lab supplies of $1.6 million, and office-related expenses of $3.5 million related to our new facilities offset by a decrease in
regulatory expenses of $1.0 million and a decrease in non-clinical expenses of $4.7 million. In August 2022, we received a Cooperative
Agreement grant from the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, to
support the development of its TNX-1300 product candidate for the treatment of cocaine intoxication. During the year ended December
31, 2023, we recorded $2.9 million in funding as a reduction of related research and development expenses.

The
table below summarizes our direct research and development expenses for our product candidates and development platform for the
years ended December 31, 2023, and 2022.

Our
direct research and development expenses consist principally of external costs for clinical, nonclinical, and manufacturing, such
as fees paid to contractors, consultants and CROs in connection with our development work. Included in “Internal Staffing,
Overhead and Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel,
regulatory and legal.

General and Administrative
Expenses. General and administrative expenses for the fiscal year ended December 31, 2023, were $34.8 million, an increase
of $4.6 million, or 15%, from $30.2 million incurred in the fiscal year ended December 31, 2022. The increase is primarily due to an increase
in sales and marketing of $1.8 million, and transition services agreement fees payable to Upsher Smith of $1.5 million, and office-related expenses
of $1.0 million.

Net
Loss. As a result of the foregoing, the net loss for the year ended December 31, 2023, was $116.7 million, compared to
a net loss of $110.2 million for the year ended December 31, 2022.

License
Agreements

On
February 13, 2023, we exercised an option to obtain an exclusive license from Columbia University (“Columbia”) for
the development of a portfolio of fully human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including
our TNX-3600 and TNX-4100 product candidates, respectively. The licensed mAbs were developed as part of a research collaboration
and option agreement between us and Columbia. As of December 31, 2023, other than the upfront fee, no payments have been accrued
or paid in relation to this agreement.

On
December 12, 2022, we entered into an exclusive license agreement with Curia for the development of three humanized murine mAbs
for the treatment or prophylaxis of SARS-CoV-2 infection. As consideration for entering into the License Agreement, we paid a
license fee of approximately $0.4 million to Curia. The license agreement also provides for single-digit royalties and contingent
milestone payments. As of December 31, 2023, other than the upfront fee, no payments have been accrued or paid in relation to
this agreement.

On
May 18, 2022, we entered into an exclusive license agreement with the University of Alberta focused on identifying and testing
broad-spectrum antiviral drugs against future variants of SARS-CoV-2 and other emerging viruses. As consideration for entering
into the license agreement, we paid a low-five digit license fee to University of Alberta. The license agreement also provides
for single-digit royalties and contingent milestone payments. As of December 31, 2023, other than the upfront fee, no payments
have been accrued or paid in relation to this agreement.

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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 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 (such transaction, the “USL Acquisition”). The transaction closed on June 30, 2023.

Additionally, in connection with the acquisition
from Upsher Smith, we and Upsher Smith entered into a transition services agreement pursuant to which Upsher Smith agreed to provide certain
transition services to us for base fees equal to $100,000 per month for the first six months, and $150,000 per month for the seventh through
ninth months, plus additional monthly fees for each service category totaling up to $150,000 per month. We have signed an amendment to
the transitional services agreement with Upsher Smith so that Upsher Smith will continue to provide administrative services.

As the assets acquired from Upsher Smith
met the definition of a business under the current accounting guidance, the total purchase price was allocated to the acquired inventory
and other tangible assets, and the developed technology intangible assets related to Zembrace and Tosymra based on their estimated fair
values on the acquisition date. The excess of the purchase price over the fair value of the acquired assets was recorded as goodwill.

We have assumed certain obligations of Upsher Smith, including the payment of quarterly
earn-out payments on annual net sales from the Business in the U.S. as follows: for Tosymra, 4% for net sales of $0 to $30 million, 7%
of net sales of $30 to $75 million; 9% for net sales of $75 to $100 million; 12% for net sales of $100 to $150 million; and 15% for net
sales greater than $150 million. Earn-out payments with respect to Tosymra are payable until the expiration or termination of the product’s
Orange Book listed patent(s) with respect to the United States or, outside the United States, the expiration of the last valid claim covering
the product in the relevant country of the territory. For Zembrace, earn-out payments on annual net sales in the U.S. are 3% for net sales
of $0 to $30 million, 6% of net sales of $30 to $75 million; 12% for net sales of $75 to $100 million; 16% for net sales of greater than
$100 million. Such earn-out payments are payable until July 19, 2025. Upon the entry of a generic version of the relevant product, the
applicable earn-out rates will be reduced by 90% percent for Zembrace, and by 66.7% percent 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.

On
February 2, 2023, we entered into an asset purchase agreement (the “Healion Purchase Agreement”) with Healion
Bio Inc., pursuant to which we acquired all the pre-clinical infectious disease assets of
Healion for $1.2 million. Because the Healion intellectual property was acquired prior to FDA approval, the $1.2 million
cash consideration was expensed as research and development costs since there is no alternative future use and the acquired intellectual
property does not constitute a business.

Liquidity
and Capital Resources

As
of December 31, 2023, we had working capital of $28.9 million, comprised primarily of cash and cash equivalents of $24.9 million
inventory of $13.6 million, and prepaid expenses and other of $9.2 million, offset by $3.8 million of accounts payable, $12.5
million of accrued expenses and other current liabilities, $2.4 million of term loan payable, short term and $0.3 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 the acquisition of Zembrace and Tosymra.

The
following table provides a summary of operating, investing, and financing cash flows for the years ended December 31, 2023, and
2022, respectively (in thousands):

For
the years ended December 31, 2023, and 2022, we used approximately $102.0 million and $98.1 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 research and development and general and administrative
activities.

Cash
used by investing activities for the year ended December 31, 2023, was approximately $29.1 million related to the purchase of
Zembrace and Tosymra assets and property and equipment. Cash used in investing activities for the year ended December 31, 2022, was $48.1 million,
related to the purchase of property and equipment. A significant portion of capital expenditure in 2022 is related to the build-out of the
RDC and ADC.

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For
the year ended December 31, 2023, net proceeds from financing activities were $36.5 million, primarily related to the sale of
common stock and warrants; and debt raised which was offset by repurchase of common stock. For the year ended December 31, 2022, net proceeds
from financing activities were $87.8 million, predominately from the sale of our common stock.

We
believe that our cash resources at December 31, 2023 and the proceeds that we raised from equity offerings in the first quarter
of 2024, will meet our operating and capital expenditure requirements into the second quarter of 2024, but not beyond.

We
continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more
rapidly than currently expected due to changes we may make in our research and development spending plans. These factors raise
substantial doubt about our ability to continue as a going concern for the one-year period from the date of filing of this Form
10-K. 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 occurs, 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.
We will not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product
candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability
of financing and our success in developing markets for our product candidates.

We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include
the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to
raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts
owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common stock.

If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise
seek to develop or commercialize independently.

Share
Repurchase Program

Since
January 1, 2023, the Company has repurchased 2,512,044
of its shares of common stock outstanding under a $12.5 million share purchase program at
prices ranging from $2.75 to $8.61 per share for a gross aggregate cost of approximately
$12.5 million. In addition, we incurred expenses of $0.3 million.

In
January 2023, the Board of Directors approved a new share repurchase program pursuant
to which the Company may repurchase up to an additional $12.5 million in value of its outstanding common stock from
time to time on the open market and in privately negotiated transactions subject to market conditions, share price and other factors. Since
January 1, 2023, the Company has repurchased 160,000 of its shares of common stock
outstanding under the new share repurchase program at $7.12 per share for a gross aggregate cost of $1.1 million.

Debt
Financing

On
December 8, 2023, we executed a Loan and Guaranty Agreement (the “Loan Agreement”) to issue a 36-month term loan (the
“Term Loan”) in the 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,
we deposited into a reserve account $1.8 million to be used exclusively to fund interest payments related to the Term Loan. The
deposit is reflected as prepaid and other current assets on the consolidated balance sheet.

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Commencing
on March 8, 2024 and continuing monthly through the Maturity Date, the outstanding principal will be due and payable in monthly
installments of $0.2 million, with the final remaining balance of unpaid principal and interest due and payable on the Maturity
Date. In addition, we 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. We 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 us, which among other things, will require us to provide
certain financial reports to the lenders, to maintain a deposit account to fund interest payments, and limit the ability of us
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. Our obligations 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 our R&D Center in Frederick, Maryland, the Advanced Development Center in North Dartmouth, Massachusetts,
and substantially all of the relevant deposit accounts.

As
of December 31, 2023, the carrying amount of the Term Loan approximated its fair value as the contractual interest rate for the
Term Loan was representative of the then market interest rate.

April 2024 Financing

On
March 28, 2024, we sold 10,766,666 shares of common stock, pre-funded warrants to purchase up to 3,900,000 shares of common stock, and
accompanying Series E warrants to purchase up to 14,666,666 shares of common stock with an exercise price of $0.33 per share and expiring
five and a half years from date of issuance in a public offering, which closed on April 1, 2024. The offering price per share of common
stock was $0.30, accompanying warrants was $0.33, and the offering price per share of pre-funded warrants was $0.2999.

We incurred offering
expenses of approximately $0.5 million, including placement agent fees of approximately $0.3 million. We received net proceeds of approximately
$3.9 million, after deducting the underwriting discount and other offering expenses.

Additionally, we entered into warrant amendments with certain holders of its Common
Warrants. The exercise price of each Existing Warrant will be amended to $0.33 upon approval by the Company’s stockholders of a
proposal to allow the Existing Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635, or as otherwise provided in
the Amendment if stockholder approval is not obtained by October 1, 2024. Upon stockholder approval, the termination date for Common Warrants
to purchase up to an aggregate of 6,950,000 shares will be amended to April 1, 2029; the termination date for Series A Warrants to purchase
up to an aggregate of approximately 8,900,000 shares will be April 1, 2029; the termination date for Series B Warrants to purchase up
to an aggregate of approximately 8,900,000 shares will be April 1, 2029; the termination date for Series C Warrants to purchase up to
an aggregate of approximately 34,823,928 shares will be the earlier of (i) April 1, 2026 and (ii) 10 trading days following notice by
the Company to the Series C Warrant holder of the Company’s public announcement of the FDA’s acknowledgement and acceptance
of our NDA relating to TNX-102 SL in patients with Fibromyalgia; the termination date for Series D Warrants to purchase up to an aggregate
of approximately 34,823,928 shares will be April 1, 2029. The other terms of the Existing Warrants will remain unchanged. If stockholder
approval is not obtained on or by October 1, 2024, then the Company has agreed to automatically amend the exercise price of the Existing
Warrants to the Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) of the Common Stock on October 1, 2024 if and only if the Minimum
Price is below the then current exercise price.

December
2023 Financing

On
December 20, 2023, we issued (i) 25,343,242 shares of our common stock, (ii) pre-funded warrants (the “Pre-Funded Warrants”)
to purchase up to 28,710,812 shares of common stock and (iii) Series C warrants to purchase up to 81,081,081 shares of common
stock (the “Series C Warrants”), and (iv) Series D warrants to purchase up to 81,081,081 shares of common stock (the
“Series D Warrants” and, together with the Series C Warrants, the “Common Warrants”) in a registered direct
offering. The securities were sold in fixed combinations as units. The offering price per share of common stock and accompanying
Common Warrants was $0.555, and the offering price per Pre-Funded Warrant and accompanying Common Warrants was $0.5549. The offering
closed on December 22, 2023, generating gross proceeds of approximately $30.0 million, before deducting offering expenses of $2.3
million payable by us.

The
Pre-Funded Warrants have an exercise price of $0.0001 per share, are immediately exercisable subject to certain ownership limitations,
and can be exercised at any time until exercised in full. The Series C Warrants have an exercise price of $0.555 per share, and
are exercisable on the later of approval by the Company’s stockholders of (i) a proposal to approve the filing of an amendment
to the Company’s Articles of Incorporation, increasing the number of authorized shares of common stock from 160,000,000
to 1,000,000,000 and (ii) a proposal to allow the Warrants to become exercisable in accordance with Nasdaq Listing Rule 5635 (the
later of such events, the “Approval Date”) and will expire on the later of (a) 10 trading days following the Approval
Date and (b) the earlier of (x) the two year anniversary of the Approval Date and (y) 10 trading days following the public announcement
of the FDA’s acknowledgement and acceptance of the NDA relating to TNX-102 SL in patients with fibromyalgia. The Series
D Warrants have an exercise price of $0.85 per share and are exercisable beginning on the Approval Date through the five-year
anniversary of the Approval Date.

September
2023 Financing

On
September 28, 2023, we sold 4,050,000 shares of common stock; pre-funded warrants to purchase up to 4,950,000 shares of common
stock, and accompanying common warrants to purchase up to 9,000,000 shares of common stock with an exercise price of $0.50 per
share and expiring one year from date of issuance, and common warrants to purchase up to 9,000,000 shares of common stock with
an exercise price of $0.50 per share and expiring five years from date of issuance in a public offering which closed on October
3, 2023. The offering price per share of common stock and accompanying common warrant was $0.50, and the offering price per share
of pre-funded warrant and accompanying common warrant was $0.4999.

We
incurred other offering expenses of approximately $0.5 million, including a placement agent discount. We received net proceeds
of approximately $4.0 million, after deducting the underwriting discount and other offering expenses.

July
2023 Financing

On
July 27, 2023, we sold securities consisting of 2,530,000 shares of common stock; pre-funded warrants to purchase up to 4,470,000
shares of common stock and common warrants to purchase up to 7,000,000 shares of common stock in a public offering that closed
on August 1, 2023. The offering price per share of common stock and accompanying common warrant was $1.00, and the offering price
per pre-funded warrant and accompanying common warrant was $0.9999.

We
incurred offering expenses of approximately $0.7 million, including placement agent fees of approximately $0.5 million. We received
net proceeds of approximately $6.3 million, after deducting the underwriting discount and other offering expenses.

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Convertible
Redeemable Preferred stock

On
October 26, 2022, we issued 1,400,000 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock to certain
institutional investors in a private placement. The Preferred Stock had an aggregate stated value of $15,000,000. Each share of
the Preferred Stock had a purchase price of $9.50, representing an OID of 5% of the stated value. The shares of the preferred
stock were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $6.25
per share.

All
outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock
were redeemed in December 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $15.8 million in the aggregate.

On
June 24, 2022, we issued 2,500,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock to certain
institutional investors in a private placement. The Preferred Stock had an aggregate stated value of $30,000,000. Each share of
the Preferred Stock had a purchase price of $9.50, representing an OID of 5% of the stated value. The shares of the preferred
stock were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $25.00
per share.

All
outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock
were redeemed in August 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $31.5 million in the aggregate.

2022
Lincoln Park Transaction

On
August 16, 2022, we entered into a purchase agreement (the “2022 Purchase Agreement”) and a registration rights agreement
with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us up to $50,000,000 of our common stock (subject to
certain limitations) from time to time. We filed a registration statement to register for resale the shares that have been or
may be issued to Lincoln Park under the 2022 Purchase Agreement.

We
issued 100,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock
under the 2022 Purchase Agreement. The commitment shares were valued at $1,000,000 and recorded as an addition to equity for the
issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2022 Purchase Agreement.

During
the year ended December 31, 2023, we sold 0.1 million shares of common stock under the 2022 Purchase Agreement, for net proceeds
of approximately $0.4 million. During the year ended December 31, 2022, we sold 0.2 million shares of common stock under
the 2022 Purchase Agreement for net proceeds of approximately $0.5 million.

2021
Lincoln Park Transaction

On
December 3, 2021, we entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement
with Lincoln Park, pursuant to which Lincoln Park has agreed to purchase from us up to $80,000,000 of our common stock (subject
to certain limitations) from time to time. We filed a registration statement to register for resale the shares that have been
or may be issued to Lincoln Park under the 2021 Purchase Agreement.

We
issued 14,546 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock
under the 2021 Purchase Agreement with Lincoln Park. The commitment shares were valued at $1.6 million and recorded as an addition
to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the
Purchase Agreement with Lincoln Park.

During
the year ended December 31, 2022, we sold 0.5 million shares of common stock under the 2021 Purchase Agreement for net proceeds
of approximately $8.7 million. No sales occurred in 2023, and we may not sell any additional shares under the 2021 Purchase Agreement.

At-the-Market
Offerings

On
April 8, 2020, we entered into a sales agreement (the “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 $320.0 million in at-the-market
offerings (“ATM”) sales. 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 year ended December 31, 2023, we sold approximately 1.0 million shares of common stock under the Sales Agreement, for
net proceeds of approximately $3.0 million. During the year ended December 31, 2022, we sold approximately 9.1 million shares
of common stock under the Sales Agreement, for net proceeds of approximately $85.3 million.

Stock
Compensation

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” providing for an annual increase in the number of shares of our common stock available for issuance under the
Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021 and ending on
(and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number of
shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares
of common stock reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year
(including shares subject to outstanding awards, issued pursuant to awards or available for future awards). The Board of Directors
determines the exercise price, vesting and expiration period of the grants under the Amended and Restated 2020 Plan. However,
the exercise price of an incentive stock option may not be less than 110% of fair value of the common stock at the date of the
grant for a 10% or more shareholder and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common
stock is determined based on quoted market price or in absence of such quoted market price, by the Board of Directors in good
faith. Additionally, the expiration period of grants under the Amended and Restated 2020 Plan may not be more than ten years.
As of December 31, 2023, 1,071,599 options were available for future grants under the Amended and Restated 2020 Plan.

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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 1/36th each month thereafter for 24 months and expire ten years from the date of grant. In addition,
the Company issues options to directors which vest over a one-year period. The Company also issues premium options to executive
officers which have an exercise price greater than the grant date fair value and has issued performance-based options which vest
when target parameters are met or probable of being met, subject in each case to a one year minimum service period prior to vesting.
Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line method.

The
risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of
the options as of the grant date. The expected term of options is determined using the simplified method, as provided in
an SEC Staff Accounting Bulletin, and the expected stock price volatility is based on the Company’ historical stock
price volatility.

The
weighted average fair value of options granted during the year ended December 31, 2023, was $3.99 per share. The weighted average
fair value of options granted during the year ended December 31, 2022, was $32.81 per share.

Stock-based
compensation expense relating to options granted of $9.3 million, of which $6.4 million and $2.9 million, related to General and
Administration and Research and Development, respectively was recognized for the year ended December 31, 2023. Stock-based compensation
expense relating to options granted of $10.9 million, of which $7.9 million and $3.0 million, related to General and Administration
and Research and Development, respectively was recognized for the year ended December 31, 2022.

As
of December 31, 2023, the Company had approximately $6.1 million of total unrecognized compensation cost related to non-vested
awards granted under the Plans, which the Company expects to recognize over a weighted average period of 1.70 years.

Employee
Stock Purchase Plan

On
May 6, 2022, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2022 Employee Stock Purchase Plan (the “2022
ESPP”), which was replaced by the Tonix Pharmaceuticals Holdings Corp. 2023 Employee Stock Purchase Plan (the “2023
ESPP”, and together with the 2022 ESPP, the “ESPP Plans”), which was approved by the Company’s stockholders
on May 5, 2023.

The
2023 ESPP allows eligible employees to purchase up to an aggregate of 800,000 shares of the Company’s common stock.
Under the 2023 ESPP, on the first day of each offering period, each eligible employee for that offering period has the option
to enroll for that offering period, which allows the eligible employees to purchase shares of the Company’s common stock
at the end of the offering period. Each offering period under the 2023 ESPP is for six months, which can be modified from time-to-time.
Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s
accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of
the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must
designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period
for the purchase of stock under the 2023 ESPP, subject to the statutory limit under the Code. As of December 31, 2023, 800,000
shares were available for future sales under the 2023 ESPP.

The
ESPP Plans are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For
the year ended December 31, 2023 and 2022, $34,000 and $46,000, respectively, was expensed. In January 2022, 646 shares that were
purchased as of December 31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2022, approximately
$40,000 of employee payroll deductions accumulated at December 31, 2021, related to acquiring such shares, was transferred from
accrued expenses to additional paid in capital. The remaining $30,000 was returned to the employees. In January 2023, 14,999 shares
that were purchased as of December 31, 2022, under the 2022 ESPP, were issued. Accordingly, during the first quarter of 2023,
approximately $29,000 of employee payroll deductions accumulated at December 31, 2022, related to acquiring such shares, was transferred
from accrued expenses to additional paid in capital. The remaining $14,000 was returned to the employees. As of December 31, 2023,
approximately $44,000 of employee payroll deductions have accumulated and have been recorded in accrued expenses. In January
2024, 66,359 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.

83

Commitments

Research
and Development Contracts

We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately
$23.2 million at December 31, 2023 for future work to be performed.

Operating
leases

As
of December 31, 2023, future minimum lease payments are as follows (in thousands):

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 statements.

Business
Combinations. We apply the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring
entity recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. We use
our best estimates and assumptions to estimate the fair values of these tangible and intangible assets. Any excess of the purchase
price over amounts allocated to the assets acquired is recorded as goodwill. The acquired intangible assets are amortized using
the straight-line method over the estimated useful lives of the respective assets. 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.

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. We began
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. 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.

84

We
estimate our 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.

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 is 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.

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

Redeemable
Convertible Preferred Stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are
measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that
feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company’s control, as temporary equity (“mezzanine”) until such time as the conditions
are removed or lapse.

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.

Recently
Adopted Accounting Pronouncements

In
August 2020, the Financial Accounting Standards Board (“FASB” issued Accounting Standards Update (“ASU”)
No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity, which simplifies accounting for convertible instruments by removing major separation models required under current
GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative
scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on
January 1, 2023, under the modified retrospective method of transition. The adoption of ASU 2020-06 did not impact the Company’s
financial position, results of operations or cash flows.

In
June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective
of ASU 2016-13 is to provide financial statement users with more decision-useful information about an entity’s expected credit
losses on financial instruments and other commitments to extend credit at each reporting date. To achieve this objective, the
amendments in this update replace the incurred loss impairment methodology currently used today with a methodology that reflects
expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit
loss estimates. ASU 2016-13 will be effective for us for fiscal years beginning after December 15, 2022, including interim
periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. We adopted ASU 2016-13 and
related updates as of January 1, 2023. The adoption of ASU 2016-13 did not impact the Company’s financial position,
results of operations or cash flows.

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ITEM
7 – 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. 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 and should
be read together with the “Risk Factors” section of this Annual Report on Form 10-K for a discussion of important factors
that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained
in the following discussion and analysis. Our actual results could differ materially from those anticipated in these forward-looking statements
as a result of various factors, including those discussed below and elsewhere in this Annual Report and in other reports we file with
the Securities and Exchange Commission, particularly those under “Risk Factors.”.

Business
Overview

We are a clinical-stage biopharmaceutical company focused on developing
therapeutics and vaccines to treat and prevent human disease and alleviate suffering. We have a rich pipeline of products in development
that has been curated from internal discovery, as well as licenses, acquisitions and collaborations with academic institutions and contract
research organizations. We continue to build capabilities in synthetic biology, precision medicine, protein engineering, medicinal chemistry,
molecular biology, pharmacogenomics and clinical-scale manufacturing. Our therapeutics under development include both small molecules
and biologics.

Our portfolio consists of central nervous system, or CNS, rare disease,
immunology, and infectious disease product candidates. The CNS portfolio includes small molecules and biologics to treat pain, neurologic,
psychiatric and addiction conditions. Our rare disease portfolio focuses on developing novel therapies for patients with rare diseases,
including those caused by genetic disorders which are characterized by complex symptoms and for which no drug is approved. Our immunology
portfolio includes biologics to address organ transplant rejection, autoimmune diseases and cancer. Our infectious disease portfolio includes
a vaccine in development to prevent smallpox and mpox (formerly known as monkeypox), next-generation vaccines to prevent COVID-19, a platform
to make fully human mAbs to treat COVID-19 and humanized anti-SARS-CoV-2 mAbs. Our vaccine in development to prevent smallpox and mpox
also serves as the live virus vaccine platform or recombinant pox vaccine (RPV) platform for other infectious diseases.

Our latest stage CNS product
candidate is TNX-102 SL*, a proprietary sublingual tablet formulation of cyclobenzaprine (CBP) designed for bedtime administration. TNX-102
SL has active INDs for fibromyalgia, or FM, FM-type Long COVID or PASC (post-acute sequelae of SARS-CoV-2 infection), posttraumatic stress
disorder, or PTSD, agitation in Alzheimer’s disease, or AAD, and alcohol use disorder, or AUD.

TNX-102 SL is in mid-Phase 3 development for the management of FM, a pain
disorder characterized by chronic widespread pain, non-restorative sleep, fatigue and impaired cognition. In December 2020, we reported
positive results from the Phase 3 RELIEF study of TNX-102 SL 5.6 mg for the management of FM. In July 2021, we reported pre-planned interim
analysis results from a second Phase 3 study, RALLY. Based on the recommendation from the independent data monitoring committee that the
RALLY trial was unlikely to demonstrate a statistically significant improvement in the primary endpoint, we stopped enrollment of new
participants but allowed those participants who were already enrolled to complete the study. We reported topline data from the completed
study in March of 2022. As expected, based on interim analysis results, TNX-102 SL did not achieve statistical significance over placebo
on the primary endpoint of reduction in daily pain, and relative to the previous positive Phase 3 Study (RELIEF), RALLY had an unexpected
increase in study participant adverse event-related discontinuations in both drug and placebo groups. In April 2022, we started a new
potentially confirmatory Phase 3 study of TNX-102 SL in FM, RESILIENT. Interim analysis results are expected in the second quarter of
2023 and topline results are expected in the fourth quarter of 2023. Following a positive outcome of the RESILIENT study, we believe we
would be positioned to file a New Drug Application (NDA) for TNX-102 SL for the management of FM.

TNX-102 SL is also
being developed as a potential treatment for a type of Long COVID, the symptoms of which overlap with FM, that we term FM-type
Long COVID. We initiated enrollment in the Phase 2 study PREVAIL, in August 2022. The primary endpoint is a change in daily pain
scores from baseline.

For TNX-102 SL in PTSD,
we completed the Phase 3 RECOVERY trial and reported topline results in the fourth quarter of 2020 in which TNX-102 SL did not
meet the primary efficacy endpoint. PTSD is a serious psychiatric condition that develops in response to experiencing a traumatic
event. We subsequently completed a meeting with the FDA to discuss potential new endpoints for the indication of treatment of PTSD.
Future studies will employ the one month look-back CAPS-5 as the primary endpoint rather than the one week look-back used in prior
studies.

The
AAD program is Phase 2 ready with an active IND and FDA Fast Track designation. AAD, which includes emotional lability, restlessness,
irritability, and aggression, is one of the most distressing and debilitating of the behavioral complications of Alzheimer’s disease.
We do not have any near-term plans to start a Phase 2 study in AAD.

The
AUD program is also Phase 2 ready with an active IND. AUD is a chronic relapsing brain disease characterized by compulsive alcohol use,
loss of control over alcohol intake, and a negative emotional state when not using alcohol. We do not have any near-term plans to start
a Phase 2 study in AUD.

TNX-1900* (intranasal
potentiated oxytocin) is in development for the treatment of chronic migraine and obesity-associated binge eating disorder, or BED.
TNX-1900 was acquired from Trigemina, Inc. and licensed from Stanford University in 2020. The potentiated formulation includes
magnesium, which has been shown in animal studies to potentiate binding of oxytocin to the oxytocin receptor. We received IND
clearance from the FDA in the fourth quarter of 2021 to study TNX-1900 in chronic migraine and we initiated a Phase 2 study in
migraine in the first quarter of 2023. We expect interim analysis results from the first 50 percent of patients enrolled in the
fourth quarter of 2023. In March 2022, we announced an agreement with Massachusetts General Hospital, a teaching hospital of Harvard
Medical School, to conduct an investigator-initiated Phase 2 clinical trial to study TNX-1900 in BED. The Phase 2 clinical trial is
expected to start in the second quarter of 2023. We do not own an IND for BED. We also licensed technology to use TNX-1900 for the
treatment of insulin resistance from the University of Geneva and also have rights to develop it as a treatment for craniofacial
pain, but we are not imminently pursuing clinical trials in either of these indications at this time.

59

TNX-601 ER* (tianeptine hemioxalate extended-release tablets) is a CNS
product candidate in development as a treatment for major depressive disorder, or depression, and with possible additional indications
of PTSD, and neurocognitive dysfunction associated with corticosteroid use. TNX-601 ER represents a novel approach to treating depression
in the U.S., since the active ingredient tianeptine induces a neuroprotective and resilient phenotype in both neurons and microglia under
conditions of stress in animals. The dramatic and unique effects of tianeptine are illustrated in animal models by the restoration of
dendritic arborization of pyramidal neurons of CA3 region of hippocampus and the dentate gyrus region new neuron formation and integration
into hippocampal networks. In contrast, antidepressants that are marketed in the U.S. act by modulating the levels or receptor binding
of neurotransmitters in the synapse. We have completed a Phase 1 trial for formulation development outside of the U.S. We expect to initiate
a potentially pivotal Phase 2 study in the first quarter of 2023 for the treatment of major depressive disorder and we expect interim
analysis results from the first 50 percent of patients enrolled in the fourth quarter of 2023.

Another CNS candidate in development
is TNX-1300* (double-mutant cocaine esterase) which is in Phase 2 for the treatment of life-threatening cocaine intoxication. TNX-1300
has been granted Breakthrough Therapy designation, or BTD, by the U.S. Food and Drug Administration, or FDA. TNX-1300 was licensed from
Columbia University in 2019 after a Phase 2 study showed that it rapidly and efficiently disintegrates cocaine in the blood of volunteers
who received intravenous, or i.v., cocaine. In August of 2022, we received a Federal Grant from the National Institute on Drug Abuse (NIDA)
to advance the development of TNX-1300 as a treatment for cocaine intoxication. We expect to initiate a potentially pivotal Phase 2 study
of TNX-1300 in emergency rooms in the second quarter of 2023.

Finally,
our CNS pipeline includes TNX-1600*, an inhibitor of the reuptake of neurotransmitters serotonin, norepinephrine and dopamine, or a triple
reuptake inhibitor. TNX-1600 was licensed from Wayne State University in 2019 and is expected to be developed as a treatment for PTSD,
depression and attention-deficit/hyperactivity disorder, or ADHD. TNX-1600 is in the preclinical stage of development.

Our rare disease portfolio
consists of TNX-2900*, another magnesium-potentiated, intranasal oxytocin-based therapeutic in development for the treatment of Prader-Willi
syndrome, or PWS. The technology for TNX-2900 was licensed from Inserm, the French National Institute of Health and Medical Research.
PWS, an orphan condition, is a rare genetic disorder of failure to thrive in infancy, associated with uncontrolled appetite beginning
in childhood with complications of obesity and diabetes. We have sponsored a research program at Inserm to study oxytocin on suckling
behavior in mice that have been engineered to express one of the Prader-Willi genes. TNX-2900 has been granted Orphan-Drug Designation
for the treatment of PWS, and is in the pre-IND stage of development.

Our lead candidate
in the immunology pipeline is TNX-1500*, a humanized mAb, directed against CD40-ligand, or CD40L (also
known as CD154), engineered to modulate binding to Fc receptors, that is being developed as a prophylaxis against organ transplant
rejection as well as to treat autoimmune conditions. In experiments at the Massachusetts General Hospital or MGH, a teaching hospital
of Harvard Medical School, TNX-1500 is being studied as monotherapy or in combination with other immunosuppressive agents in heart
and kidney allogeneic organ transplants in non-human primates. Preliminary results from ongoing experiments in kidney and heart
transplants indicate that TNX-1500 appears to have comparable efficacy to historical experiments using the chimeric mouse/human
IgG1 version (5c8H1) of the anti-CD40L mAb 5c8. First generation anti-CD40L mAb therapies were associated with an increased risk
of blood clots or thrombosis. In the non-human primate studies with TNX-1500 for allogeneic kidney or heart transplantation, no
evidence of thrombosis has been observed so far. We expect to start a Phase 1 study of TNX-1500 in the second quarter of 2023.
TNX-1500 also is being studied in combination with other immunosuppressive agents in xenogeneic organ transplants in non-human
primates at MGH and at the University of Maryland at Baltimore or UMB. In experiments at UMB, TNX-1500 is being studied to prevent
rejection of xenogeneic hearts from genetically engineered pigs developed by the Revivicor division of United Therapeutics Corporation.

Our immunology pipeline
also includes TNX-1700*, a recombinant Trefoil Factor Family 2, or rTFF2, fusion protein that was licensed from Columbia University
in 2019. TNX-1700 consists of TFF2 fused to human serum albumin or I and is a biologic being developed to treat gastric and colorectal
cancers by an immune-oncology mechanism, in combination with PD1 blockers, and is in the preclinical stage of development. We recently
presented data that show a murine version of TNX-1700 consisting of a fusion protein with murine serum albumin or MSA was able
to evoke anti-tumor immunity in the MC38 mouse model of colorectal cancer as monotherapy and that TNX-1700 augmented the efficacy
of anti-PD1 therapy in both the MC38 mouse model and the CT26.wt models of colorectal cancer.

Our infectious disease
portfolio includes vaccines based on our live virus vaccine or recombinant pox vaccine, “RPV” platform. Live virus
vaccines are believed to protect against poor clinical outcomes of infectious diseases by eliciting T cell responses in addition
to antibody responses. TNX-801*, a live attenuated vaccine based on synthesized horsepox is in the pre-IND stage of development
to protect against smallpox and mpox. Non-human primates vaccinated with TNX-801 were protected from monkeypox in studies reported
in the first quarter of 2020. A Phase 1 study of TNX-801 in humans is expected to start in the second half of 2023. TNX-801
also serves as the live virus vaccine platform for other infectious diseases for which subsequent products will be designed by
expressing other viral antigens in the horsepox vector.

TNX-1850* is a live
virus vaccine that expresses the SARS-CoV-2 spike protein from the BA.2 strain that has not yet been tested in animals. TNX-1800*
is a live virus vaccine that expresses the SARS-CoV-2 spike protein from the ancestral Wuhan strain, which has shown encouraging
results in non-human primates. Because the subsequent omicron variant out-competed the ancestral Wuhan strain, we began work on
new vaccine versions, TNX-1840* and TNX-1850*, that are designed to express spike protein from the omicron variant and from the
BA.2 variant, respectively. Of those, based on the trajectory of COVID-19, the focus is now on TNX-1850. The COVID-19 vaccines
that are approved for use, or have emergency use authorization, or EUA, in the U.S. have provided significant health benefits to
the vaccinated population; however, they have shown limitations in the durability of protection conferred and in their ability
to block forward transmission. Live virus vaccines that protect against other viral diseases by eliciting T cell responses have
shown durability of protection that lasts years to decades and some live virus vaccines have significantly inhibited forward transmission.
With respect to TNX-1800 vaccination, we reported positive efficacy data from animal challenge studies using live SARS-CoV-2 in
the first quarter of 2021. In this study, TNX-1800 vaccinated, SARS-CoV-2 challenged animals had undetectable SARS-CoV-2 in the
upper airways, which we believe relates to potential inhibition of forward transmission of this respiratory pathogen.

TNX-2300* is a live
virus vaccine based on bovine parainfluenza virus in development to protect against COVID-19. In April 2022, we extended a sponsored
research agreement with Kansas State University to develop a vaccine candidate, TNX-2300, for the prevention of COVID-19 that utilizes
a novel live virus vaccine vector platform based on bovine parainfluenza virus. The efficacy of co-expression of the CD40-ligand,
also known as CD154, to stimulate T cell immunity will also be tested. Attenuated bovine parainfluenza virus has previously been
shown to be an effective antigen delivery vector in humans. Previous work by others has shown that attenuated BPI3V is tolerated
and immunogenic in non-human primates and human infants and children. We believe the vector is well suited for mucosal immunization
using a nasal atomizer, and can also be delivered parenterally. TNX-2300 is in the preclinical stage of development.

TNX-3600* and TNX-3800*
are mAbs directed against SARS-CoV-2 which are in development as potential therapeutic or preventative agents for COVID-19. Given
the unpredictable trajectory of the SARS-CoV-2 virus and new variants, we seek to contribute a broad set of anti-SARS-CoV-2 mAbs,
that can be scaled up quickly and potentially combined with other mAbs. We envision the future of mAb therapy for COVID-19 to be
cocktails of mAbs with specificity to variants of concern.  TNX-3600 refers to a series of fully human mAbs generated by human-human hybridomas from COVID-19 convalescent volunteers. We are collaborating with Columbia University to produce these fully
human mAbs to SARS-CoV-2 spike proteins from variants such as delta, omicron and XBB1.5 and to other viral targets. TNX-3800 refers
to three humanized murine mAbs which we licensed exclusively in December 2022 from Curia Global, Inc. for the treatment or
prophylaxis of SARS-CoV-2 infection. The initial focus is to develop COVID-19 therapeutic mAbs. We plan to seek indications similar
to previously EUA-approved therapeutic mAbs for treating individuals with mild-to-moderate COVID-19 who are at high risk for
progression to severe disease or for prophylaxis in individuals with compromised immune systems who are at high risk for severe COVID-19 disease. None of the previously EUA-approved therapeutic or preventative mAbs are still available, because each
has become obsolete since the SARS-CoV-2 virus has mutated to evade their binding. TNX-3600 and TNX-3800 mAbs may also be used in
combination therapy with other COVID-19 therapeutic mAbs. Combination therapies with other anti-SARS-CoV-2 mAbs may reduce the
emergence of resistant viral strains. TNX-3600 and TNX-3800 are in the preclinical stage of development.

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TNX-3700* is a COVID-19
mRNA vaccine candidate employing a zinc nanoparticle (ZNP) formulation. In collaboration with Kansas State University, we are developing
this ZNP technology as a potential replacement for the lipid nanoparticle (LNP) technology used in current mRNA vaccines. ZNP technology
potentially allows for improved stability which facilitates shipping and storage and addresses the limitations in current mRNA
vaccines which require ultra-cold storage and shipping. This current requirement limits the use of mRNA vaccines in less developed
countries. We plan to seek initial indications as a booster, similar to the current FDA approved mRNA vaccines for COVID-19. We
intend to conduct research with Kansas State University on ZNP SARS-CoV-2 spike based vaccines in tissue culture and animals in
the first half of 2023. TNX-3700 is in the preclinical stage of development.

Relating to our COVID-19 and other infectious disease development programs,
we are developing the resources necessary to enable internal research, development and manufacturing capabilities necessary to meet the
goal of producing new vaccine candidates within 100 days of recognition within weeks of obtaining sequence information of a novel pathogen.
We seek to be a leader in the movement to re-build domestic U.S. research, development and manufacturing capabilities. Because this movement
follows a protracted period when domestic research, development and manufacturing were moved out of the U.S., or “off-shore”
by other companies to save on labor and other costs, the movement to reverse that trend has been described as “on-shoring”
or “re-domestication”. The COVID-19 pandemic taught that national borders may close during a health emergency. Therefore,
domestic capabilities are essential for the health security of the U.S., which has also been described as pandemic preparedness and biodefense.
As articulated in the American Pandemic Preparedness Plan, or AP3, released by the U.S. Office of Science and Technology Policy, this
100-day goal for vaccines is a key component of preparedness for future pandemics. We believe we have established the infrastructure necessary
to support the pandemic preparedness goals established in the AP3, specifically with respect to our RPV vaccine and potentially to other
vaccine and therapeutic platforms. This infrastructure consists of (i) our R&D Center, or “RDC”, (ii) our Advanced Development
Center, or ADC, and (iii) our Commercial Manufacturing Center, or CMC. We acquired the RDC in Frederick, Maryland consisting of one building
totaling approximately 48,000 square feet. The acquisition closed in October 2021 and the facility is operational. The RDC facility focuses
on our development of vaccines and antiviral drugs against SARS-CoV-2, its variants, and other infectious diseases. The RDC also conducts
research on central nervous system and immunology drugs. The RDC facility is mostly biosafety level 2 (BSL-2), with some components designated
BSL-3. We completed the substantial renovation of the ADC located in the New Bedford business park in Dartmouth, Massachusetts, which
became operational as of the fourth quarter 2022. This approximately 45,000 square foot BSL-2 facility is intended to accelerate development
and clinical scale manufacturing of live-virus vaccines and biologics to support clinical trials. We also plan to build the CMC in Hamilton,
Montana, where we purchased approximately 44 acres of land and have built a field office to manage construction of the facility. The CMC
will focus on developing and manufacturing commercial scale live-virus vaccines and biologics and is also intended to be BSL-2. Site enabling
work is expected to be initiated for the CMC in 2023. Together, we expect these facilities may qualify the RPV vaccine platform for programs
that are designed to carry out the goals of AP3.

*All
of our product candidates are investigational new drugs or biologics and have not been approved for any indication.

We
are led by a management team with significant industry experience in drug development. We complement our management team with a network
of scientific, clinical, and regulatory advisors that includes recognized experts in their respective fields.

Results
of Operations

We
anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as 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 to make.

Fiscal
year Ended December 31, 2022 Compared to Fiscal year Ended December 31, 2021

The
following table sets forth our operating expenses for the fiscal years ended December 31, 2022 and 2021 (in thousands):

Research
and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2022, were $81.9 million,
an increase of $13.1 million, or 19%, from $68.8 million for the fiscal year ended December 31, 2021. This increase is predominately due
to increased employee-related expenses of $9.0 million, predominately related to new hires at the RDC and ADC, lab supplies of $3.3 million, and office-related expenses of $1.4 million related
to our new facilities offset by a decrease in regulatory expenses of $0.4 million and a decrease in market research expenses of $0.3 million.
We expect research and development expenses to increase during 2023 as we move our clinical development programs forward and continue
to invest in our development pipeline.

The
table below summarizes our direct research and development expenses for our product candidates and development platform for the years
ended December 31, 2022, and 2021.

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Our
direct research and development expenses consist principally of external costs for clinical, nonclinical and manufacturing, such as fees
paid to contractors, consultants and CROs in connection with our development work. Included in “Internal Staffing, Overhead and
Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel, regulatory and
legal.

General
and Administrative Expenses. General and administrative expenses for the fiscal year ended December
31, 2022 were $30.2 million, an increase of $6.7 million, or 29%, from $23.5 million incurred in the fiscal year ended December 31, 2021.
The increase is primarily due to employee-related expenses of $4.3 million, of which $2.4 million relates to stock-based compensation,
an increase in legal fees of $0.1 million due to increased patent prosecution costs, an increase in software/technology expenses of $0.5
million, an increase in financial reporting expenses of $1.1 million, and an increase in travel-related of $0.4 million.

Net
Loss. As a result of the foregoing, the net loss for the year ended December 31, 2022 was $110.2 million, compared to a net
loss of $92.3 million for the year ended December 31, 2021.

License
Agreements

On
February 13, 2023, we exercised an option to obtain an exclusive license from Columbia for the development of a portfolio of both fully
human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including our TNX-3600 and TNX-4100 product candidates,
respectively. The licensed mAbs were developed as part of a research collaboration and option agreement between us and Columbia.

On
December 12, 2022, we entered into an exclusive license agreement with Curia for the development of three humanized murine mAbs for the
treatment or prophylaxis of SARS-CoV-2 infection. We believe that the licensing of these mAbs strengthens our pipeline of next-generation
therapeutics to treat COVID-19, which is caused by SARS-CoV-2. As consideration for entering into the License Agreement, we paid a license
fee of approximately $0.4 million to Curia. The License Agreement also provides for single-digit royalties and contingent milestone payments.
As of December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

On
May 18, 2022, we entered into an exclusive License Agreement with the University of Alberta focused on identifying and testing broad-spectrum
antiviral drugs against future variants of SARS-CoV-2 and other emerging viruses. As consideration for entering into the License Agreement,
we paid a low-five digit license fee to University of Alberta. The License Agreement also provides for single-digit royalties and contingent
milestone payments. As of December 31, 2022, other than the upfront fee, no payments have been accrued or paid in relation to this agreement.

On
April 14, 2021, we and OyaGen, Inc. (“OyaGen”) entered into an exclusive License Agreement (the “OyaGen License Agreement”)
pursuant to which OyaGen granted us an exclusive license to certain patents and technical information related to an antiviral inhibitor
of SARS-CoV-2, sangivamycin, and to develop and commercialize products thereunder, and to acquire rights to any technology based thereon
for the prevention or treatment of Covid-19 developed by OyaGen during the term of the License Agreement.

As consideration for entering
into the License Agreement, we agreed to pay a low-seven digit license fee to OyaGen, and agreed to issue to OyaGen and an affiliated
entity an aggregate of 86,010 shares of our common stock, valued at $3.0 million, which are unregistered and subject to a six-month lock-up
and a voting agreement, pursuant to which OyaGen and the affiliated entity have agreed to vote the common stock on any matter put to
a vote of the shareholders of the Company in accordance with management’s recommendations. The OyaGen License also provides for
single-digit royalties and contingent milestone payments. No milestone payments were accrued or paid in relation to this agreement. In
July 2022, we notified OyaGen of our intent to terminate the License Agreement, and the agreement was terminated effective September
20, 2022.

On
February 11, 2021, we entered into a license agreement (the “Inserm License Agreement”) pursuant to which we licensed technology
using oxytocin-based therapeutics for the treatment of Prader-Willi syndrome and non-organic failure to thrive disease from Inserm (the
French National Institute of Health and Medical Research), Aix-Marseille Université and Centre Hospitalier Universitaire of Toulouse.
The Inserm License Agreement provides for the payment of annual fees and milestone payments upon the occurrence of specified sales milestones,
totaling approximately $0.4 million, as well royalties on net sales of products based on the licensed technology, and assignment/transfer
and sublicense royalties. As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

On
September 16, 2019, we entered into an exclusive License Agreement (the “Columbia License Agreement”) with the Trustees of
Columbia University in the City of New York (“Columbia”), as subsequently amended, pursuant to which Columbia granted to us
an exclusive license, with the right to sublicense, certain patents and technical information (collectively, the “TFF2 Technology”)
related to a recombinant Trefoil Family Factor 2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2 Product”).
Pursuant to the terms of the Columbia License Agreement, Columbia has reserved for itself the right to practice the TFF2 Technology for
academic research and educational purposes.

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We
paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research
and development expenses in the statement of operations for the year ended December 31, 2019. We are obligated to use Commercially Reasonable
Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified developmental
milestones.

We
are obligated to pay Columbia single-digit royalties on net sales of (i) TFF2 Products sold by us or a sublicensee and (ii) any other
products that involve material or technical information related to the TFF2 Product and transferred to us pursuant to the License Agreement
(“Other Products”) sold by us or a sublicensee. Royalties on each particular TFF2 Product are payable on a country-by-country
and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued
patents covered by the Columbia License Agreement, and (ii) a specified period of time after the first commercial sale of a TFF2 Product
in the country in question. Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis
until a specified period of time after the first commercial sale of such particular Other Product in such country. Royalties payable on
net sales of the TFF2 Product and Other Products may be reduced by 50% of the royalties payable by us to any third party for intellectual
property rights which are necessary for the practice of the rights licensed to us under the Columbia License Agreement, provided that
the royalty payable on a TFF2 Product or Other Product may not be reduced by more than 50%.

We
are also obligated to make contingent milestone payments to Columbia totaling $4.1 million on a Product-by-Product basis upon the achievement
of certain development, approval and sales milestones related to a TFF2 Product. In addition, we shall pay Columbia 5% of consideration,
other than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As of December 31, 2022, no
milestone payments have been accrued or paid in relation to this agreement.

On
May 20, 2019, we entered into an exclusive License Agreement (the “License Agreement”) with Columbia pursuant to which Columbia,
for itself and on behalf of the University of Kentucky and the University of Michigan (collectively, the “Institutions”) granted
to us an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”)
related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”). Pursuant
to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the Technology for
academic research and educational purposes.

We
paid a six-digit license fee to Columbia as consideration for entering into the License Agreement. We are obligated to use Commercially
Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product, and to achieve specified developmental
milestones.

We
are obligated to pay Columbia single-digit royalties on net sales of (i) Products sold by us or a sublicensee and (ii) any other products
that involve material or technical information related to the Product and transferred to us pursuant to the License Agreement (“Other
Products”) sold by us or a sublicensee. Royalties on each particular Product are payable on a country-by-country and Product-by-Product
basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued patents covered by the
License Agreement, (ii) a specified period of time after the first commercial sale of a Product in the country in question, or (iii) expiration
of any market exclusivity period granted by a regulatory agency. Royalties on each particular Other Product are payable on a country-by-country
and product-by-product basis until the later of (i) a specified period of time after the first commercial sale of such particular Other
Product in such country or (ii) expiration of any market exclusivity period granted by a regulatory agency. Royalties payable on net sales
of the Product and Other Products may be reduced by 50% of the royalties payable by us to any third party for intellectual property rights
which are necessary for the practice of the rights licensed to us under the License Agreement, provided that the royalty payable on a
Product or Other Product may not be reduced by more than 50%.

We
are also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis upon the achievement
of certain development, approval and sales milestones related to a Product. In addition, we shall pay Columbia 5% of consideration, other
than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As of December 31, 2022, no milestone
payments have been accrued or paid in relation to this agreement.

Asset
Purchase Agreements

On
February 2, 2023, we entered into an asset purchase agreement (the “Asset
Purchase Agreement”) with Healion Bio Inc., pursuant to which we acquired all the pre-clinical
infectious disease assets of Healion, including its portfolio of next-generation antiviral technology assets. Healion’s drug portfolio
includes a class of broad-spectrum small molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including
TNX-3900, formerly known as HB-121. As consideration for entering into the Asset Purchase Agreement, we paid $1.2 million to Healion.
Because the Healion intellectual property was acquired prior to FDA approval, the cash consideration totaling $1.2 million, is expected
to be expensed as research and development costs since there is no alternative future use and the acquired intellectual property does
not constitute a business.

On
December 22, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Katana Pharmaceuticals,
Inc. (“Katana”) pursuant to which we acquired Katana assets related to insulin resistance and related syndromes, including
obesity (the “Katana Assets”). In connection with the acquisition of the Assets, we assumed Katana’s rights and obligations
under that certain Exclusive License Agreement by and between Katana and The University of Geneva (“Geneva”) (the “Geneva
License “Agreement”) pursuant to an Assignment and Assumption Agreement with Geneva (“Geneva Assignment and Assumption
Agreement”), dated December 22, 2020. As consideration for entering into the Asset Purchase Agreement, we paid $0.7 million to Katana.
Because the Katana intellectual property was acquired prior to FDA approval, the cash consideration totaling $0.7 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.

Pursuant
to the terms of the Geneva Assignment and Assumption Agreement, Geneva granted us an exclusive license, with the right to sublicense,
certain patents related to the Katana Assets. We are obligated to use commercially reasonable efforts to diligently develop, manufacture,
and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such
products. The Geneva License Agreement specifies developmental milestones and the period of time during which such milestones must be
completed and provides for an annual maintenance fee payable to Geneva. As of December 31, 2022, no milestone payments have been accrued
or paid in relation to this agreement.

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On
June 11, 2020, we entered into an asset purchase agreement (the “Trigemina Asset Purchase Agreement”) with Trigemina, Inc.
(“Trigemina”) and certain shareholders named therein (the “Executive Shareholders”) pursuant to which we acquired
Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection with the acquisition
of the Trigemina Assets, we assumed Trigemina’s rights and obligations under that certain Amended and Restated Exclusive License
Agreement, dated November 30, 2007, as amended, by and between Trigemina and The Board of Trustees of the Leland Stanford Junior University
(“Stanford”) (the “Stanford License “Agreement”) pursuant to an Assignment and Assumption Agreement with
Stanford (“Assignment and Assumption Agreement”), dated June 11, 2020.

As
consideration for entering into the Trigemina Asset Purchase Agreement, we paid $824,759 to Trigemina and issued to Trigemina 62,500 shares
of our common stock and paid Stanford $250,241 pursuant to the terms of the Assignment and Assumption Agreement. The common stock is unregistered
and subject to a 12 month lock-up and a Shareholder Voting Agreement, dated June 11, 2020, pursuant to which Trigemina and the Executive
Shareholders have agreed to vote the common stock on any matter put to a vote of our shareholders in accordance with management’s
recommendations. Both the costs associated with the cash payments and share issuance, totaling $2.4 million, were recorded to research
and development in the statement of operations for the year ended December 31, 2020. Because the Trigemina intellectual property was acquired
prior to FDA approval, the cash and stock consideration was expensed as research and development costs since there is no alternative future
use and the acquired intellectual property does not constitute a business.

Pursuant
to the terms of the Assignment and Assumption Agreement, Stanford has granted us an exclusive license, with the right to sublicense, certain
patents related to the Trigemina Assets. Stanford has reserved for itself the right to practice under the patents for academic research
and educational purposes. We are obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products
claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Stanford
License Agreement specifies developmental milestones and the period of time during which such milestones must be completed, and provides
for an annual maintenance fee payable to Stanford. As of December 31, 2022, other than the annual maintenance fee, no milestone payments
have been accrued or paid in relation to this agreement.

On
August 19, 2019, we entered into an asset purchase agreement (the “TRImaran Asset Purchase Agreement”) with TRImaran Pharma,
Inc. (“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant to which we
acquired TRImaran’s assets related to certain pyran-based compounds (the “TRImaran Assets”). In connection with the
acquisition of the TRImaran Assets, we entered into a First Amended and Restated Exclusive License Agreement (the “WSU License Agreement”)
with Wayne State University (“WSU”) on August 19, 2019, as subsequently amended. As consideration for entering into the TRImaran
Asset Purchase Agreement, we paid $100,000 to TRImaran and have assumed certain liabilities of TRImaran totaling $68,500. The $168,500
was recorded to research and development expenses in the statement of operations in 2019. Upon the achievement of specified development,
regulatory and sales milestones, we also agreed to pay TRImaran and the Selling Shareholders, in restricted stock or cash, at our option,
a total of approximately $3.4 million. Pursuant to the terms of the TRImaran Asset Purchase Agreement, TRImaran and the Selling Shareholders
are prohibited from disclosing confidential information related to the TRImaran Assets and are restricted from engaging, for a period
of three years, in the development or commercialization of any therapeutic containing any pyran-based drug compound for the treatment
of post-traumatic stress disorder, attention deficit hyperactivity disorder or major depressive disorder. Also for a period of three years,
if TRImaran or any Selling Shareholder engage in the research or development of any potential therapeutic compound for the treatment of
any central nervous system disorder, TRImaran or such Selling Shareholder is obliged to provide notice and opportunity to Tonix to make
an offer to acquire or license rights with respect to such product candidate. As of December 31, 2022, no milestone payments have been
accrued or paid in relation to this agreement.

Pursuant
to the terms of the WSU License Agreement, WSU granted us an exclusive license, with the right to sublicense, certain patents, technical
information and material (collectively, the “Technology”) related to the TRImaran Assets. WSU has reserved for itself the
right to practice the Technology for academic research and educational purposes. We are obligated to use commercially reasonable efforts
to obtain regulatory approval for one or more products utilizing the Technology (“WSU Products”) and to use commercially reasonable
marketing efforts throughout the term of the WSU License Agreement. The WSU License Agreement specifies developmental milestones and the
period of time during which such milestones must be completed and provides for an annual maintenance fee payable to WSU. We are obligated
to substantially manufacture WSU Products in the United States if WSU Products will be sold in the United States.

Pursuant
to the WSU License Agreement, we paid $75,000 to WSU as reimbursement of certain patent expenses, and, upon the achievement of specified
development, regulatory and sales milestones, we also agreed to pay WSU, milestone payments totaling approximately $3.4 million. We have
also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by us or a sublicensee on a tiered basis based on net
sales, and additional sublicense fees on certain consideration received from sublicensees. Royalties on each particular WSU Product are
payable on a country-by-country and Product-by-Product basis until the date of expiration of the last valid claim in the last to expire
of the issued patents covered by the WSU License Agreement. Royalties payable on net sales of WSU Products may be reduced by 50% of the
royalties payable by us to any third party for intellectual property rights which are necessary for the practice of the rights licensed
to us under the WSU License Agreement, provided that the royalty payable on a WSU Product may not be reduced by more than 50%. Each party
also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy. The WSU License Agreement
contains provisions relating to termination, indemnification, confidentiality and other customary matters for an agreement of this kind.
As of December 31, 2022, no milestone payments have been accrued or paid in relation to this agreement.

Liquidity
and Capital Resources

As
of December 31, 2022, we had working capital of $112.6 million, comprised primarily of cash and cash equivalents of $120.2 million and
prepaid expenses and other of $10.5 million, offset by $8.1 million of accounts payable, $9.7 million of accrued expenses and other current
liabilities and $0.4 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 Phase 3 clinical trial in FM and our vaccine program.

The
following table provides a summary of operating, investing and financing cash flows for the years ended December 31, 2022, and 2021, respectively
(in thousands):

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For
the years ended December 31, 2022 and 2021, we used approximately $98.1 million and $75.6 million of cash in operating activities, respectively,
which represents cash outlays for research and development and general and administrative expenses in such periods. The increase in cash
outlays principally resulted from an increase in research and development and general and administrative activities.

Cash
used by investing activities for the years ended December 31, 2022 and 2021 was approximately $48.1 million and $35.3 million, respectively,
related to the purchase of property and equipment. A significant portion of capital expenditure relates to the build-out of the RDC and ADC.

For
the years ended December 31, 2022 and 2021, net proceeds from financing activities were $87.8 million and $212.5 million, respectively,
predominately from the sale of our common stock.

We believe that our cash
resources at December 31, 2022 and the proceeds that we raised from equity offerings in the first quarter of 2023, net of amounts paid
to repurchase shares in the first quarter of 2023, will meet our operating and capital expenditure requirements into the fourth quarter
of 2023, but not beyond.

We
face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more rapidly than currently
expected due to changes we may make in our research and development spending plans. These factors raise substantial doubt about our ability
to continue as a going concern for the one year period from the date of filing of this Form 10-K. We believe we have the ability to 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 in an effort to provide sufficient funds to continue our operations.
If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.

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 buildout of our research and development operations and manufacturing. We will
not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product candidates,
the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing
patent claims and other intellectual property rights, the status of competitive products, the availability of financing and our success
in developing markets for our product candidates.

We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include the issuance
of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to raise the funds required,
it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected
cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, shareholders
may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing
holders of our common stock.

If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of or eliminate
our research and development programs, reduce our commercialization efforts or obtain funds through arrangements with collaborative partners
or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize
independently.

Share
Repurchase Program

Since January 1, 2023, the Company
has repurchased 15,700,269 of its shares of common stock outstanding under a $12.5 million
share purchase program at prices ranging from $0.44 to $1.38 per share for a gross aggregate cost of approximately $12.5 million.

In January 2023, the Board of Directors
approved a new share repurchase program pursuant to which the Company may repurchase up to an additional $12.5
million in value of its outstanding common stock from time to time on the open market and in privately negotiated transactions subject
to market conditions, share price and other factors. Since January 1, 2023, the Company has
repurchased 1,000,000 of its shares of common stock outstanding under the new share repurchase
program at $1.14 per share for a gross aggregate cost of $1.1 million.

Convertible Redeemable Preferred stock

On October
26, 2022, we issued 1,400,000 shares of Series A Preferred Stock and 100,000 shares of Series B Preferred Stock to certain institutional
investors in a private placement. The Preferred Stock had an aggregate stated value of $15,000,000. Each share of the Preferred Stock
had a purchase price of $9.50, representing an original issue discount (“OID”) of 5% of the stated value. The shares of the
preferred stock were convertible into shares of our common stock, upon the occurrence of certain events, at a conversion price of $1.00
per share, at the option of the holder, and at our option upon the fulfillment of certain conditions and subject to certain limitations.
The Company and the holders of the preferred stock also entered into a registration rights agreement to register the resale of the shares
of common stock issuable in the event of the conversion of the preferred stock. The $14.3 million in gross proceeds of the offering were
held in an escrow account, along with an additional $1.5 million deposited by the Company to cover the aggregate OID as well as the additional
amount that would have been necessary to fund the 105% redemption price until the expiration of the redemption period for the Preferred
Stock.

All
outstanding shares of the Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed
in December 2022 at 105% of the $10.00 stated value of the Preferred Stock, or $15.8 million in the aggregate.

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On June
24, 2022, we issued 2,500,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock to certain institutional
investors in a private placement. The Preferred Stock had an aggregate stated value of $30,000,000. Each share of the Preferred Stock
had a purchase price of $9.50, representing an OID of 5% of the stated value. The shares of the preferred stock were convertible into
shares of our common stock, upon the occurrence of certain events, at a conversion price of $4.00 per share, at the option of the holder,
and at our option upon the fulfillment of certain conditions and subject to certain limitations. The Company and the holders of the preferred
stock also entered into a registration rights agreement to register the resale of the shares of common stock issuable in the event of
the conversion of the preferred stock. The $28.5 million in gross proceeds of the offering were held in an escrow account, along with
an additional $3.0 million deposited by the Company to cover the aggregate OID as well as the additional amount that would have been necessary
to fund the 105% redemption price until the expiration of the redemption period for the Preferred Stock.

All outstanding shares of the
Series A Convertible Redeemable Preferred Stock and Series B Convertible Redeemable Preferred Stock were redeemed in August 2022 at 105%
of the $10.00 stated value of the Preferred Stock, or $31.5 million in the aggregate.

2022
Lincoln Park Transaction

On
August 16, 2022, we entered into a purchase agreement (the “2022 Purchase Agreement”) and a registration rights agreement
(the “2022 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the
terms of the 2022 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $50,000,000 of our common stock (subject to certain
limitations) from time to time during the term of the 2022 Purchase Agreement. Pursuant to the terms of the 2022 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 2022 Purchase Agreement.

Pursuant
to the terms of the 2022 Purchase Agreement, at the time we signed the 2022 Purchase Agreement and the 2022 Registration Rights Agreement,
we issued 625,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under
the 2022 Purchase Agreement. The commitment shares were valued at $1,000,000 and recorded as an addition to equity for the issuance of
the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2022 Purchase Agreement.

During
the year ended December 31, 2022, we sold 1.0 million shares of common stock under the 2022 Purchase Agreement, for net proceeds of approximately
$0.5 million. Subsequent to December 31, 2022, the Company sold 0.6 million shares of common stock under the Purchase Agreement
with Lincoln Park for net proceeds of approximately $0.4 million.

Purchase
Agreement with Lincoln Park

On
December 3, 2021, we entered into a purchase agreement (the “Purchase Agreement with Lincoln Park”) and a registration rights
agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the Purchase Agreement with Lincoln Park, Lincoln Park agreed to purchase from us up to $80,000,000 of our common
stock (subject to certain limitations) from time to time during the term of the Purchase Agreement with Lincoln Park. Pursuant to the
terms of the Lincoln Park Registration Rights Agreement, 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 Purchase Agreement with Lincoln Park.

Pursuant
to the terms of the Purchase Agreement with Lincoln Park, at the time we signed the Purchase Agreement with Lincoln Park and the Lincoln
Park Registration Rights Agreement, we issued 90,910 shares of common stock to Lincoln Park as consideration for its commitment to purchase
shares of our common stock under the Purchase Agreement with Lincoln Park. The commitment shares were valued at $1.6 million and recorded
as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under
the Purchase Agreement with Lincoln Park.

During
the year ended December 31, 2022, we sold 2.9 million shares of common stock under the Purchase Agreement with Lincoln Park, for net proceeds
of approximately $8.7 million.

Under
applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99% of the shares of its common stock outstanding
immediately prior to the execution of the Purchase Agreement (approximately 2.9 million shares) with Lincoln Park under the Purchase Agreement
without stockholder approval, unless the average price of all applicable sales of its common stock to Lincoln Park under the Purchase
Agreement equals or exceeds a threshold amount. As we have issued approximately 2.9 million shares to Lincoln Park under the Purchase
Agreement at less than the threshold amount, we will not sell any additional shares under the Purchase Agreement without shareholder approval.

2021
Lincoln Park Transaction

On
May 14, 2021, we entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement (the
“2021 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms
of the 2021 Purchase Agreement, Lincoln Park agreed to purchase from us up to $80,000,000 of our common stock (subject to certain limitations)
from time to time during the term of the 2021 Purchase Agreement. Pursuant to the terms of the 2021 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 2021 Purchase Agreement.

Pursuant
to the terms of the 2021 Purchase Agreement, at the time we signed the 2021 Purchase Agreement and the 2021 Registration Rights Agreement,
we issued 40,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under
the 2021 Purchase Agreement. The commitment shares were valued at $1.6 million and recorded as an addition to equity for the issuance
of the common stock and treated as a reduction to equity as a cost of capital to be raised under the 2021 Purchase Agreement.

During
the year ended December 31, 2021, we sold an aggregate of approximately 2.0 million shares of common stock under the 2021 Purchase Agreement,
for gross proceeds of approximately $41.3 million. During the year ended December 31, 2022, no shares of common stock were sold under
the 2021 Purchase Agreement.

Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the 2021 Purchase Agreement (approximately 2.0 million shares) to Lincoln Park under the 2021 Purchase
Agreement without stockholder approval, unless the average price of all applicable sales of our common stock to Lincoln Park under the
2021 Purchase Agreement equals or exceeds a threshold amount.

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As
we have issued approximately 2.0 million shares to Lincoln Park under the 2021 Purchase Agreement, at less than the threshold amount,
we will not sell any additional shares under the 2021 Purchase Agreement without shareholder approval.

February
2021 Financing

On
February 8, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale
of 1.8 million shares of our common stock, in a registered direct public offering (“the February 2021 Financing”), with A.G.P/Alliance
Global Partners (“AGP”), acting as placement agent. The public offering price for each share of common stock was $38.40. The
February 2021 Financing closed on February 9, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate amount of $4.9
million. We incurred other offering expenses of approximately $0.1 million. We received net proceeds of approximately $65.0 million, after
deducting the fees and other offering expenses.

January
2021 Financing

On
January 11, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale
of 1.6 million shares of its common stock in a registered direct public offering (“the January 2021 Financing”), with AGP
as placement agent. The public offering price for each share of common stock was $25.60. The January 2021 Financing closed on January
13, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $2.8 million. We incurred other offering expenses of
approximately $0.3 million. The Company received net proceeds of approximately $36.9 million, after deducting the fees and other offering
expenses.

At-the-Market
Offerings

On
April 8, 2020, we entered into a sales agreement (the “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 $320.0 million in at-the-market
offerings (“ATM”) sales. 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 year ended December 31, 2022, we sold approximately 56.4 million shares of common stock under the Sales Agreement, for
net proceeds of approximately $85.3 million. During the year ended December 31, 2021, we sold approximately 3.5 million shares of
common stock under the Sales Agreement, for net proceeds of approximately $69.3 million. Subsequent to December 31, 2022, we sold
2.1 million shares of common stock under the Sales Agreement, for net proceeds of approximately $1.4 million.

Stock Compensation

Stock
Options

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”).
The 2019 Plan provided for the issuance of up to 4,375 shares of our common stock. With the adoption of the 2020 Plan (as defined below),
no further grants may be made under the 2019 Plan. On January 16, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp.
2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan provided for the issuance of up to 18,750 shares of our common
stock. With the adoption of the Amended and Restated 2020 Plan (as defined below), no further grants may be made under the 2020 Plan.

On
May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan (“Amended
and Restated 2020 Plan”), and together with the 2020 Plan and the 2019 Plan, the “Plans”).

Under the terms of the Amended and Restated 2020 Plan, we may issue (1)
stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights (“SARs”), (4) RSUs, (5) other
stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up to 312,500
shares of common stock, which amount will be increased to the extent that awards granted under the Plans are forfeited, expire or
are settled for cash (except as otherwise provided in the Amended and Restated 2020 Plan). In addition, the Amended and Restated 2020
Plan contains an “evergreen provision” providing for an annual increase in the number of shares of our common stock available
for issuance under the Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021
and ending on (and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number
of shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares of
common stock reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year (including
shares subject to outstanding awards, issued pursuant to awards or available for future awards). The Board of Directors determines the
exercise price, vesting and expiration period of the grants under the Amended and Restated 2020 Plan. However, the exercise price of an
incentive stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder
and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted market
price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration period of grants
under the Amended and Restated 2020 Plan may not be more than ten years. As of December 31, 2022, 627,735 shares were available for future
grants under the 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 1/36th each month thereafter for 24 months and expire ten years
from the date of grant. In addition, the Company issues options to directors which vest over a one-year period. The Company also issues
premium options to executive officers which have an exercise price greater than the grant date fair value and has issued performance-based
options which vest when target parameters are met or probable of being met, subject in each case to a one year minimum service period
prior to vesting. Stock-based compensation expense related to awards is amortized over the applicable service period using the straight-line
method.

The
risk-free interest rate is based on the yield of Daily U.S. Treasury Yield Curve Rates with terms equal to the expected term of the options
as of the grant date. The expected term of options is determined using the simplified method, as provided in an SEC Staff Accounting
Bulletin, and the expected stock price volatility is based on the Company’ historical stock price volatility.

The
weighted average grant date fair value of options granted during the years ended December 31, 2022 and 2021, was $5.25 and $33.78 per
share, respectively.

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Stock-based
compensation expense relating to options granted of $10.9 million, of which $7.9 million and $3.0 million, related to General and Administration
and Research and Development, respectively was recognized for the year ended December 31, 2022. Stock-based compensation expense
relating to options granted of $7.9 million, of which $5.5 million and $2.4 million, related to General and Administration and Research
and Development, respectively was recognized for the year ended December 31, 2021.

As
of December 31, 2022, we have approximately $11.6 million of unrecognized compensation cost related to non-vested awards granted under
the Plans, which we expect to recognize over a weighted average period of 1.73 years.

Employee
Stock Purchase Plan

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan (the “2019 ESPP”).
As a result of adoption of the 2020 ESPP, as defined below, by the stockholders, no further grants may be made under the 2019 ESPP Plan.
On May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2020 Employee Stock Purchase Plan (the “2020
ESPP”). No further grants may be made under the 2020 ESPP Plan. On May 6, 2022, our stockholders approved the Tonix Pharmaceuticals
Holdings Corp. 2022 Employee Stock Purchase Plan (the “2022 ESPP”, and together with the 2019 ESPP and the 2020 ESPP, the
“ESPP Plans”)).

The
2022 ESPP allows eligible employees to purchase up to an aggregate of 93,750 shares of our common stock. Under the 2022 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 2022 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 2022 ESPP, subject to the statutory limit under the Code.
As of December 31, 2022, 9 shares were available for future sales under the 2022 ESPP.

The
2022 and 2020 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For
the year ended December 31, 2022 and 2021, $46,000 and $89,000, respectively were expensed. In January 2021, 1,703 shares that were purchased
as of December 31, 2020, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2021, approximately $28,000 of employee
payroll deductions accumulated at December 31, 2020, related to acquiring such shares, was transferred from accrued expenses to additional
paid in capital. The remaining $4,000 was returned to the employees. In January 2022, 4,033 shares that were purchased as of December
31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2022, approximately $40,000 of employee payroll deductions
accumulated at December 31, 2021, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital.
The remaining $30,000 was returned to the employees. As of December 31, 2022, approximately $43,000 of employee payroll deductions have
accumulated and have been recorded in accrued expenses. In January 2023, 93,741 shares that were purchased as of December 31, 2022,
under the 2022 ESPP, were issued. Accordingly, during the first quarter of 2023, approximately $29,000 of employee payroll deductions
accumulated at December 31, 2022, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital.
The remaining $14,000 was returned to the employees.

Commitments

Research
and Development Contracts

We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately $58.6
million at December 31, 2022 for future work to be performed.

We
have entered into a construction contract with outstanding commitments aggregating approximately $2.0 million at December 31, 2022 for
future work to be performed.

Operating
Leases

At
December 31, 2022, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows
(in thousands):

Critical
Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations are based on our condensed 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.

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We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our
consolidated financial statements.

Research
and Development. We outsource 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 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.

Redeemable
Convertible Preferred Stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured
at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within
the Company’s control, as temporary equity (“mezzanine”) until such time as the conditions are removed or lapse.

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.

Recently
Issued Accounting Pronouncements

In August 2020, the FASB issued
ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and
it also simplifies the diluted earnings per share calculation in certain areas. We adopted ASU 2020-06 on January 1, 2023, under the modified
retrospective method of transition. We do not anticipate the adoption of ASU 2020-06 to impact the Company’s financial position,
results of operations or cash flows.

ITEM
7 - 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. 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 and should be read together with the “Risk Factors” section of this Annual Report on Form 10-K
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and analysis. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and
elsewhere in this Annual Report and in other reports we file with the Securities and Exchange Commission, particularly those under
“Risk Factors.”.

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Business Overview

We are a clinical-stage biopharmaceutical
company focused on discovering, licensing, acquiring and developing therapeutics and diagnostics to treat and prevent human disease and
alleviate suffering. We are building capabilities in synthetic biology, precision medicine, protein engineering and vaccine manufacturing
through internal efforts as well as through collaborations with academic institutions and contract research organizations. Our therapeutics
under development include both small molecules and biologics. All of our drug, biologic and diagnostic candidates are still in development.

Tonix’s portfolio is primarily
composed of immunology, central nervous system, or CNS, and infectious disease product candidates. Tonix’s immunology portfolio
includes biologics to address organ transplant rejection, autoimmune diseases and cancer. The CNS portfolio includes small molecules and
biologics to treat pain, neurologic, psychiatric and addiction conditions. Tonix’s infectious disease portfolio of product candidates
includes next-generation vaccines to prevent COVID-19, an antiviral to treat COVID-19, and a potential treatment for Long COVID. The infectious
disease portfolio also includes a vaccine in development to prevent smallpox and monkeypox.

Tonix’s lead candidate within
its immunology pipeline is TNX-1500*, a humanized monoclonal antibody, or mAb, directed against CD40-ligand, or CD40L, engineered to modulate
binding to Fc receptors, that is being developed to prevent and treat organ transplant rejection as well as to treat autoimmune conditions.
In experiments at the Massachusetts General Hospital, a teaching hospital of Harvard Medical School, TNX-1500 is being studied as monotherapy
or in combination with other immunosuppressive agents in heart and kidney organ transplants in non-human primates. Preliminary results
from an ongoing experiment in heart transplants indicate that TNX-1500 appears to have comparable efficacy to historical experiments using
the chimeric mouse/human IgG1 version (5c8H1) of the anti-CD40L mAb 5c8. First generation anti-CD40L mAbs were associated with an increased
risk of blood clotting or thrombosis. In the non-human primate studies with TNX-1500, no evidence of thrombosis has been observed so far.
We expect to start a Phase 1 study of TNX-1500 in the second half of 2022.

Among the CNS candidates
in development is TNX-1300* (double-mutant cocaine esterase) which is in Phase 2 for the treatment of life-threatening cocaine intoxication.
TNX-1300 has been granted Breakthrough Therapy designation, or BTD, by the U.S. Food and Drug Administration, or FDA. TNX-1300 was licensed
from Columbia University in 2019 after a Phase 2 study showed that it rapidly and efficiently disintegrates cocaine in the blood of volunteers
who received intravenous, or i.v., cocaine. We expect to initiate a Phase 2 open-label safety study of TNX-1300 in an emergency room setting
in the first half of 2022.

Our latest
stage CNS product candidate is TNX-102 SL*, a proprietary sublingual tablet formulation of CBP, designed for bedtime administration. TNX-102
SL has active INDs for fibromyalgia, or FM, posttraumatic stress disorder, or PTSD, agitation in Alzheimer’s disease, or AAD, and
alcohol use disorder, or AUD. We also intend to develop TNX-102 SL as a treatment for Long COVID, which is also known as post-acute sequelae
of COVID-19, or PASC.

TNX-102
SL is in mid-Phase 3 development for the management of FM, a pain disorder characterized by chronic widespread pain, non-restorative sleep,
fatigue and impaired cognition. In December 2020, we reported positive results from the Phase 3 RELIEF study of TNX-102 SL 5.6 mg for
the management of FM. In July 2021, we reported pre-planned interim analysis results from a second Phase 3 study, RALLY. Based on the
recommendation from the independent data monitoring committee that the RALLY trial was unlikely to demonstrate a statistically significant
improvement in the primary endpoint, we stopped enrollment of new participants but allowed those participants who were already enrolled
to complete the study. We expect to report topline data from the completed study in the first quarter of 2022. We expect to analyze the
RALLY results to improve the design of subsequent Phase 3 studies. In addition, we plan to employ pharmacogenomic techniques to compare
the RALLY and RELIEF study populations, which may provide a path to precision medicine-based companion diagnostics for TNX-102 SL in FM.
We intend to start a new Phase 3 study of TNX-102 SL in FM in the first half of 2022.

TNX-102
SL is also being developed as a potential treatment for Long COVID. We met with the FDA in the third quarter of 2021 to seek agreement
on the design of a Phase 2 potential pivotal study and the overall clinical development plan to qualify TNX-102 SL as an indicated treatment
for Long COVID. We intend to focus our clinical development on the subgroup of Long COVID patients whose symptoms overlap with FM, particularly
with respect to widespread pain. We received the official minutes from this meeting in the third quarter of 2021 and intend to initiate
a Phase 2 study in the first half of 2022.

For TNX-102 SL in PTSD, we completed the Phase 3 RECOVERY trial and reported
topline results in the fourth quarter of 2020 in which TNX-102 SL did not meet the primary efficacy endpoint. PTSD is a serious psychiatric
condition that develops in response to experiencing a traumatic event. We subsequently completed a meeting with the FDA to discuss potential
new endpoints for the indication of treatment of PTSD, and we expect to begin enrolling a Phase 2 study of TNX-102 SL in police in Kenya
in the first half of 2022. The AAD program is Phase 2 ready with an active IND and FDA Fast Track designation. AAD, which includes emotional
lability, restlessness, irritability, and aggression, is one of the most distressing and debilitating of the behavioral complications
of Alzheimer’s disease. Tonix does not have any near-term plans to start a Phase 2 study in AAD. The AUD program is also Phase 2
ready with an active IND. AUD is a chronic relapsing brain disease characterized by compulsive alcohol use, loss of control over alcohol
intake, and a negative emotional state when not using alcohol. Tonix does not have any near-term plans to start a Phase 2 study in AUD.

74

TNX-1900*
(intranasal potentiated oxytocin) is in development for prophylaxis of chronic migraine and for the treatment of craniofacial pain,
insulin resistance and related conditions as well as binge eating disorder, or BED. TNX-1900 was acquired from Trigemina, Inc. and
licensed from Stanford University in 2020. The potentiated formulation includes magnesium, which has been shown in animals to
potentiate binding of oxytocin to the oxytocin receptor in the trigeminal ganglion. We received IND clearance from the FDA in the
fourth quarter of 2021 and intend to initiate a Phase 2 study in migraine in the second half of 2022. Tonix also licensed technology
to use TNX-1900 for the treatment of insulin resistance from the University of Geneva. TNX-1900 will be studied as a potential
treatment for BED in an investigator-initiated Phase 2 clinical trial. The Phase 2 clinical trial is expected to start in the second
half of 2022. In March 2022, we announced an agreement with Massachusetts General Hospital, a teaching hospital of Harvard Medical
School, to conduct this study. Tonix does not own an IND for BED.

TNX-2900*
is another intranasal oxytocin-based therapeutic in development for the treatment of Prader-Willi syndrome, or PWS. The technology
for TNX-2900 was licensed from Inserm, the French National Institute of Health and Medical Research. PWS, an orphan condition,
is a rare genetic disorder of failure to thrive in infancy, associated with uncontrolled appetite beginning in childhood with
complications of obesity and diabetes. We have sponsored a research program at the Inserm to study oxytocin on suckling behavior
in mice that have been engineered to express one of the Prader-Willi genes. TNX-2900 has been granted Orphan-Drug Designation
for the treatment of PWS.

TNX-601
CR* (tianeptine oxalate and naloxone controlled-release tablets) is a CNS product candidate in development as a treatment for major depressive
disorder, or depression, for PTSD, and for neurocognitive dysfunction associated with corticosteroid use. We completed a Phase 1 trial
for formulation development outside of the U.S. Based on official minutes from a pre-IND meeting with the FDA, we expect to initiate a
pharmacokinetic study, in the third quarter of 2022, and a Phase 2 study in the first quarter of 2023.

Tonix’s
infectious disease portfolio includes vaccines based on Tonix’s recombinant pox vaccine, or “RPV” technology platform.
RPV vaccines are believed to protect against negative outcomes of infectious diseases by eliciting T cell responses in addition to antibody
responses. TNX-801* is an RPV live horsepox virus vaccine for percutaneous administration in the pre-IND stage of development to protect
against smallpox and monkeypox. TNX-801 vaccinated non-human primates were protected from monkeypox in studies reported in the first quarter
of 2020.

TNX-1800*
is a live virus vaccine that expresses the SARS-CoV-2 spike protein from the ancestral Wuhan strain, which has shown encouraging results
in non-human primates. Because the subsequent omicron variant has out-competed the ancestral Wuhan strain, we are now planning new vaccine
versions, TNX-1840* and TNX-1850*, that are designed to express spike protein from the omicron variant and from the BA.2 variant, respectively.
The COVID-19 vaccines that are approved for use, or have emergency use authorization, or EUA, in the U.S. have provided significant health
benefits to the vaccinated population; however, they are showing limitations in the durability of protection conferred and, in their ability,
to block forward transmission. Live virus vaccines that protect against other viral diseases by eliciting T cell responses have shown
durability of protection that lasts years to decades and some live virus vaccines have significantly inhibited forward transmission. With
respect to TNX-1800 vaccination, we reported positive efficacy data from animal challenge studies using live SARS-CoV-2 in the first quarter
of 2021. In this study, TNX-1800 vaccinated, SARS-CoV-2 challenged animals had undetectable SARS-CoV-2 in the upper airways, which we
believe relates to potential inhibition of forward transmission of this respiratory pathogen.

TNX-3500*
(sangivamycin) is an antiviral inhibitor of SARS-CoV-2 which has demonstrated broad-spectrum activity in laboratory-based assays
against the coronaviruses SARS-CoV-2 and MERS-CoV. Tonix licensed this technology from OyaGen, Inc. and intends to develop it as a
treatment for COVID-19 and potentially other viral diseases. The active ingredient of TNX-3500 has been studied for safety in humans
in prior studies with cancer patients at the U.S. National Cancer Institute but has not been approved for marketing in any
jurisdiction. Tonix intends to conduct further animal studies in preparation for filing an IND.

TNX-3600*
refers to a series of fully human mAbs generated by a human-human hybridomas from COVID-19 convalescent volunteers. Tonix is collaborating
with Columbia University to produce these fully human mAbs to SARS-CoV-2 spike proteins from variants such as delta and omicron and to
other viral targets. The initial focus is to develop COVID-19 therapeutic mAbs. Tonix plans to seek indications similar to current EUA
therapeutic mAbs for treating individuals with mild-to-moderate COVID-19 who are at high risk for progression to severe disease. TNX-3600
mAbs may also be used in combination therapy with other COVID-19 therapeutic mAbs. Combination therapies with other anti-SARS-CoV-2 mAbs
may reduce the emergence of resistant viral strains. Given the unpredictable trajectory of the SARS-CoV-2 virus and new variants, we
seek to contribute to a broad set of mAbs from a variety of patients, that can be scaled up quickly and potentially combined with other
mAbs. We envision the future of mAb therapy for COVID-19 to be cocktails of mAbs with specificity to variants of concern. TNX-3600
is in the preclinical stage of development. Tonix intends to study inhibition of SARS-CoV-2 variants in tissue culture and initiate animal
studies in the first half of 2022.

75

Tonix also is collaborating with
Columbia University to better understand immune responses to SARS-CoV-2 in healthy individuals who have recovered from COVID-19, which
is expected to provide a foundation for tailoring therapeutics to appropriate individuals using precision medicine.

TNX-3700*
is a COVID-19 mRNA vaccine candidate employing a zinc nanoparticle (ZNP) formulation. In collaboration with Kansas State University, Tonix
is developing this ZNP technology as a potential replacement for the lipid nanoparticle (LNP) technology used in current mRNA vaccines.
ZNP technology potentially allows for improved stability which facilitates shipping and storage and addresses the limitations in current
mRNA vaccines which require ultra-cold storage and shipping. This current requirement limits the use of mRNA vaccines in less developed
countries. We plan to seek initial indications as a booster, similar to the current FDA approved mRNA vaccines. Tonix intends to conduct
research with Kansas State University on ZNP SARS-CoV-2 spike based vaccines in tissue culture and animals in the first half of 2022.

TNX-2100*
is an in vivo diagnostic skin test we are developing to measure SARS-CoV-2 exposure and T cell immunity. T cell immunity is more
durable than antibody immunity, since serum antibodies wane between six months and one year after vaccination. TNX-2100 is a potential
test to measure delayed-type hypersensitivity (DTH) response to SARS-CoV-2. The DTH response for other pathogens, notably tuberculosis,
can serve as an in vivo measure of functional T cell immunity. TNX-2100 is comprised of GMP peptides designed to mimic SARS-CoV-2
proteins and stimulate SARS-CoV-2 specific T cells. We initiated a first-in-human, dose-finding clinical study in the first quarter of
2022 and expect study results in the first half of 2022.

Our immunology pipeline also includes
TNX-1700*. TNX-1700 is a recombinant modified form of Trefoil Family Factor 2, or rTFF2, that was licensed from Columbia University in
2019. TNX-1700 is a biologic being developed to treat gastric and colorectal cancers by an immune-oncology mechanism and is in the preclinical
stage of development.

Our biodefense pipeline includes
TNX-701*, an undisclosed small molecule technology being developed to prevent deleterious effects of radiation exposure which has the
potential to be used as a medical countermeasure to improve biodefense. TNX-701 is in the preclinical stage of development.

Finally,
our CNS pipeline includes TNX-1600*, an inhibitor of the reuptake of neurotransmitters serotonin, norepinephrine and dopamine, or a triple
reuptake inhibitor. TNX-1600 was licensed from Wayne State University in 2019 and is being developed as a treatment for PTSD, depression
and attention-deficit/hyperactivity disorder, or ADHD. TNX-1600 is in the preclinical stage of development.

Relating
to our COVID-19 and other infectious disease development programs, we are developing the resources necessary to enable internal research,
development and manufacturing capabilities necessary to meet the goal of producing new vaccine candidates within 100 days of recognition
and new diagnostics within weeks of obtaining sequence information. As articulated in the American Pandemic Preparedness Plan, or AP3,
released by the U.S. Office of Science and Technology Policy, this 100-day goal for vaccines is a key component of preparedness for future
pandemics. We intend to establish the infrastructure necessary to support the pandemic preparedness goals established in the AP3, specifically
with respect to our RPV vaccine and skin test platforms and potentially to other vaccine, diagnostic and therapeutic platforms. This infrastructure
consists of (i) our infectious disease R&D Center, or “RDC”, (ii) our Advanced Development Center, or ADC, and (iii) our
Commercial Manufacturing Center, or CMC. We acquired the infectious disease RDC in Frederick, Maryland consisting of two buildings totaling
approximately 48,000 square feet. The acquisition closed in October 2021 and was operational at closing, but as of December 31, 2021,
the facility was not ready for its intended use. It is our intention to have the facility ready for use in the first half of 2022. The
RDC facility will focus on our development of vaccines and antiviral drugs against SARS-CoV-2, its variants, and other infectious diseases.
The RDC facility is currently biosafety level 2 (BSL-2), but we intend to upgrade components to BSL-3. We are in the process of a substantial
renovation of the ADC located in the New Bedford business park in Dartmouth, Massachusetts. This facility is intended to accelerate development
and clinical scale manufacturing of live-virus vaccines to support Phase 1 and Phase 2 clinical trials. It is currently under construction
and will be an approximately 45,000 square foot BSL-2 facility once completed. It is expected to be partially operational in the first
half of 2022. We also plan to build the CMC in Hamilton, Montana, where we purchased approximately 44 acres of land. The CMC will focus
on developing and manufacturing commercial scale live-virus vaccines and is also intended to be BSL-2. Site enabling work is expected
to be initiated for the CMC in 2022.  Together, we expect these facilities may qualify the RPV vaccine and skin test platforms for
programs that are designed to carry out the goals of AP3.

*All
of Tonix’s product candidates are investigational new drugs or biologics and have not been approved for any indication.

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Results
of Operations

We anticipate that our results
of operations will fluctuate for the foreseeable future due to several factors, such as 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 to make.

Fiscal year Ended December 31, 2021 Compared
to Fiscal year Ended December 31, 2020

The following table sets forth our operating expenses
for the fiscal years ended December 31, 2021 and 2020 (in thousands):

Research
and Development Expenses. Research and development expenses for the fiscal year ended December 31, 2021 were $68.8
million, an increase of $32.6 million, or 90%, from $36.2 million for the fiscal year ended December 31, 2020. This increase is
predominately due to increased non-clinical expenses of $14.0 million, manufacturing expenses of $10.9 million, employee-related
expenses of $5.3 million and regulatory/legal expenses of $1.9 million, offset by a decrease in clinical expenses of $0.7 million.
We expect research and development expenses to increase during 2022 as we move our clinical development programs forward and continue
to invest in our development pipeline.

The
table below summarizes our direct research and development expenses for our product candidates and development platform for the
years ended December 31, 2021, and 2020.

Our
direct research and development expenses consist principally of external costs for clinical, nonclinical and manufacturing, such
as fees paid to contractors, consultants and CROs in connection with our development work. Included in “Internal Staffing,
Overhead and Other” is overhead, supplies, research and development employee costs (including stock option expenses), travel,
regulatory and legal.

General
and Administrative Expenses. General and administrative expenses for the fiscal year ended December 31, 2021 were
$23.5 million, an increase of $9.1 million, or 63%, from $14.4 million incurred in the fiscal year ended December 31, 2020. The
increase is primarily due to employee-related expenses of $4.9 million, an increase in legal fees of $0.7 million due to increased
patent prosecution costs, an increase in investor relations/public relations expenses of $0.6 million, an increase in financial
reporting expenses of $1.2 million, and an increase in insurance premiums of $0.4 million.

Net
Loss. As a result of the foregoing, the net loss for the year ended December 31, 2021 was $92.3 million, compared to a
net loss of $50.5 million for the year ended December 31, 2020.

License
Agreements

On
April 14, 2021, we entered into an exclusive License Agreement (the “OyaGen License Agreement”) with OyaGen, Inc.
(“OyaGen”), pursuant to which OyaGen granted to us an exclusive license to certain patents and technical information
related to an antiviral inhibitor of SARS-CoV-2, sangivamycin, and to develop and commercialize products thereunder, and to acquire
rights to any technology based thereon for the prevention or treatment of Covid-19 developed by OyaGen during the term of the
License Agreement.

As
consideration for entering into the License Agreement, we paid a low-seven digit license fee to OyaGen, and issued to OyaGen and
an affiliated entity an aggregate of 2,752,294 shares of our common stock, which are unregistered and subject to a six-month lock-up
and a voting agreement, pursuant to which OyaGen and the affiliated entity have agreed to vote the common stock on any matter
put to a vote of the our shareholders in accordance with management’s recommendations. The shares were valued at $3.0 million,
which was recorded as research and development expense. The OyaGen License also provides for single-digit royalties and contingent
milestone payments.

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As
of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement

On
February 11, 2021, we announced that we have licensed technology using oxytocin-based therapeutics for the treatment of Prader-Willi
syndrome and non-organic failure to thrive disease from Inserm (the French National Institute of Health and Medical Research),
Aix-Marseille Université and Centre Hospitalier Universitaire of Toulouse. The licensing agreement has been negotiated
and signed by Inserm Transfert, the private subsidiary of Inserm, on behalf of Inserm.

The
co-exclusive license allows us to expand our intranasal potentiated oxytocin development program to a new indication. The patents
covering the technology are expected to provide market exclusivity for the co-licensees in the U.S. and Europe through 2031, which
exclusivity could be extended after marketing authorization by a Supplemental Protection Certificate in Europe or a Patent Term
Extension in the U.S., independent of other Tonix-held patents covering the formulation and oxytocin potentiation technologies
for intranasal administration.

As
of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement.

On
September 16, 2019, we entered into an exclusive License Agreement (the “Columbia License Agreement”) with the Trustees
of Columbia University in the City of New York (“Columbia”) pursuant to which Columbia granted to us an exclusive
license, with the right to sublicense, certain patents and technical information (collectively, the “TFF2 Technology”)
related to a recombinant Trefoil Family Factor 2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2
Product”). Pursuant to the terms of the Columbia License Agreement, Columbia has reserved for itself the right to practice
the TFF2 Technology for academic research and educational purposes.

We
paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was previously
recorded to research and development expenses in the statement of operations. We are obligated to use Commercially Reasonable
Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified
developmental milestones.

We
have agreed to pay Columbia single-digit royalties on net sales of (i) TFF2 Products sold by us or a sublicensee and (ii) any
other products that involve material or technical information related to the TFF2 Product and transferred to us pursuant to the
License Agreement (“Other Products”) sold by us or a sublicensee. Royalties on each particular TFF2 Product are payable
on a country-by-country and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in
the last to expire of the issued patents covered by the Columbia License Agreement, and (ii) a specified period of time after
the first commercial sale of a TFF2 Product in the country in question. Royalties on each particular Other Product are payable
on a country-by-country and product-by-product basis until a specified period of time after the first commercial sale of such
particular Other Product in such country. Royalties payable on net sales of the TFF2 Product and Other Products may be reduced
by 50% of the royalties payable by us to any third party for intellectual property rights which are necessary for the practice
of the rights licensed to us under the Columbia License Agreement, provided that the royalty payable on a TFF2 Product or Other
Product may not be reduced by more than 50%.

We
are also obligated to make contingent milestone payments to Columbia totaling $4.1 million on a Product-by-Product basis upon
the achievement of certain development, approval and sales milestones related to a TFF2 Product. In addition, we shall pay Columbia
5% of consideration, other than royalty payments and certain other categories of consideration, payable to us by a sublicensee.
As of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement.

On
May 20, 2019, we entered into an exclusive License Agreement (the “License Agreement”) with Columbia pursuant to which
Columbia, for itself and on behalf of the University of Kentucky and the University of Michigan (collectively, the “Institutions”)
granted to us an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively,
the “Technology”) related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder
(each, a “Product”). Pursuant to the terms of the License Agreement, Columbia has reserved for itself and the Institutions
the right to practice the Technology for academic research and educational purposes.

We
paid a six-digit license fee to Columbia as consideration for entering into the License Agreement. We are obligated to use Commercially
Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product, and to achieve specified developmental
milestones. The first 50% of the license fee was paid by June 30, 2019, while the remaining 50% license fee, was paid during the
second quarter of 2020. Both installments of the license fee were previously recorded to research and development expenses.

We
agreed to pay Columbia single-digit royalties on net sales of (i) Products sold by us or a sublicensee and (ii) any other products
that involve material or technical information related to the Product and transferred to us pursuant to the License Agreement
(“Other Products”) sold by us or a sublicensee. Royalties on each particular Product are payable on a country-by-country
and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the
issued patents covered by the License Agreement, (ii) a specified period of time after the first commercial sale of a Product
in the country in question, or (iii) expiration of any market exclusivity period granted by a regulatory agency. Royalties on
each particular Other Product are payable on a country-by-country and product-by-product basis until the later of (i) a specified
period of time after the first commercial sale of such particular Other Product in such country or (ii) expiration of any market
exclusivity period granted by a regulatory agency. Royalties payable on net sales of the Product and Other Products may be reduced
by 50% of the royalties payable by us to any third party for intellectual property rights which are necessary for the practice
of the rights licensed to us under the License Agreement, provided that the royalty payable on a Product or Other Product may
not be reduced by more than 50%.

78

We
are also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis upon the
achievement of certain development, approval and sales milestones related to a Product. In addition, we shall pay Columbia 5%
of consideration, other than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As
of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement.

Asset
Purchase Agreements

On
December 22, 2020, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Katana Pharmaceuticals,
Inc. (“Katana”) pursuant to which we acquired Katana assets related to insulin resistance and related syndromes, including
obesity (the “Katana Assets”). In connection with the acquisition of the Assets, we assumed Katana’s rights
and obligations under that certain Exclusive License Agreement by and between Katana and The University of Geneva (“Geneva”)
(the “Geneva License “Agreement”) pursuant to an Assignment and Assumption Agreement with Geneva (“Geneva
Assignment and Assumption Agreement”), dated December 22, 2020. As consideration for entering into the Asset Purchase Agreement,
we paid $0.7 million to Katana. The costs associated with the cash payments were recorded to research and development expenses
in the statement of operations for the year ended December 31, 2020. Because the Katana intellectual property was acquired prior
to FDA approval, the cash consideration totaling $0.7 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.

Pursuant
to the terms of the Geneva Assignment and Assumption Agreement, Geneva granted us an exclusive license, with the right to sublicense,
certain patents related to the Katana Assets. We are obligated to use commercially reasonable efforts to diligently develop, manufacture,
and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets
for such products. The Geneva License Agreement specifies developmental milestones and the period of time during which such milestones
must be completed and provides for an annual maintenance fee payable to Geneva.

As
of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement.

On
June 11, 2020, we entered into an asset purchase agreement (the “Trigemina Asset Purchase Agreement”) with Trigemina,
Inc. (“Trigemina”) and certain shareholders named therein (the “Executive Shareholders”) pursuant to which
we acquired Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection
with the acquisition of the Trigemina Assets, we assumed Trigemina’s rights and obligations under that certain Amended and
Restated Exclusive License Agreement, dated November 30, 2007, as amended, by and between Trigemina and The Board of Trustees
of the Leland Stanford Junior University (“Stanford”) (the “Stanford License “Agreement”) pursuant
to an Assignment and Assumption Agreement with Stanford (“Assignment and Assumption Agreement”), dated June 11, 2020.
As consideration for entering into the Trigemina Asset Purchase Agreement, we paid $824,759 to Trigemina and issued to Trigemina
2,000,000 shares of our common stock and paid Stanford $250,241 pursuant to the terms of the Assignment and Assumption Agreement.
The common stock is unregistered and subject to a 12 month lock-up and a Shareholder Voting Agreement, dated June 11, 2020, pursuant
to which Trigemina and the Executive Shareholders have agreed to vote the common stock on any matter put to a vote of our shareholders
in accordance with management’s recommendations. Both the costs associated with the cash payments and share issuance, totaling
$2.4 million, were recorded to research and development in the statement of operations for the year ended December 31, 2020. Because
the Trigemina intellectual property was acquired prior to FDA approval, the cash and stock consideration was expensed as research
and development costs since there is no alternative future use and the acquired intellectual property does not constitute a business.

Pursuant
to the terms of the Assignment and Assumption Agreement, Stanford has granted us an exclusive license, with the right to sublicense,
certain patents related to the Trigemina Assets. Stanford has reserved for itself the right to practice under the patents for
academic research and educational purposes. We are obligated to use commercially reasonable efforts to diligently develop, manufacture,
and sell products claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets
for such products. The Stanford License Agreement specifies developmental milestones and the period of time during which such
milestones must be completed, and provides for an annual maintenance fee payable to Stanford.

As
of December 31, 2021, no milestone payments have been accrued or paid in relation to this agreement.

On
August 19, 2019, we entered into an asset purchase agreement (the “TRImaran Asset Purchase Agreement”) with TRImaran
Pharma, Inc. (“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant
to which we acquired TRImaran’s assets related to certain pyran-based compounds (the “TRImaran Assets”). In
connection with the acquisition of the TRImaran Assets, we entered into a First Amended and Restated Exclusive License Agreement
(the “WSU License Agreement”) with Wayne State University (“WSU”) on August 19, 2019. As consideration
for entering into the TRImaran Asset Purchase Agreement, we paid $100,000 to TRImaran and have assumed certain liabilities of
TRImaran totaling $68,500. The $168,500 was previously recorded to research and development expenses in the statement of operations.
Upon the achievement of specified development, regulatory and sales milestones, we also agreed to pay TRImaran and the Selling
Shareholders, in restricted stock or cash, at our option, a total of approximately $3.4 million. Pursuant to the terms of the
TRImaran Asset Purchase Agreement, TRImaran and the Selling Shareholders are prohibited from disclosing confidential information
related to the TRImaran Assets and are restricted from engaging, for a period of three years, in the development or commercialization
of any therapeutic containing any pyran-based drug compound for the treatment of post-traumatic stress disorder, attention deficit
hyperactivity disorder or major depressive disorder. Also for a period of three years, if TRImaran or any Selling Shareholder
engage in the research or development of any potential therapeutic compound for the treatment of any central nervous system disorder,
TRImaran or such Selling Shareholder is obliged to provide notice and opportunity to Tonix to make an offer to acquire or license
rights with respect to such product candidate. As of December 31, 2021, no milestone payments have been accrued or paid in relation
to this agreement.

79

Pursuant
to the terms of the WSU License Agreement, WSU granted us an exclusive license, with the right to sublicense, certain patents,
technical information and material (collectively, the “Technology”) related to the TRImaran Assets. WSU has reserved
for itself the right to practice the Technology for academic research and educational purposes. We are obligated to use commercially
reasonable efforts to obtain regulatory approval for one or more products utilizing the Technology (“WSU Products”)
and to use commercially reasonable marketing efforts throughout the term of the WSU License Agreement. The WSU License Agreement
specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual
maintenance fee payable to WSU. We are obligated to substantially manufacture WSU Products in the United States if WSU Products
will be sold in the United States.

Pursuant
to the WSU License Agreement, we paid $75,000 to WSU as reimbursement of certain patent expenses, and, upon the achievement of
specified development, regulatory and sales milestones, we also agreed to pay WSU, milestone payments totaling approximately $3.4
million. We also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by us or a sublicensee on a tiered
basis based on net sales, and additional sublicense fees on certain consideration received from sublicensees. Royalties on each
particular WSU Product are payable on a country-by-country and Product-by-Product basis until the date of expiration of the last
valid claim in the last to expire of the issued patents covered by the WSU License Agreement. Royalties payable on net sales of
WSU Products may be reduced by 50% of the royalties payable by us to any third party for intellectual property rights which are
necessary for the practice of the rights licensed to us under the WSU License Agreement, provided that the royalty payable on
a WSU Product may not be reduced by more than 50%. Each party also has the right to terminate the agreement for customary reasons
such as material breach and bankruptcy. The WSU License Agreement contains provisions relating to termination, indemnification,
confidentiality and other customary matters for an agreement of this kind. As of December 31, 2021, no milestone payments have
been accrued or paid in relation to this agreement.

Liquidity
and Capital Resources

As
of December 31, 2021, we had working capital of $167.3 million, comprised primarily of cash and cash equivalents of $178.7 million
and prepaid expenses and other of $10.4 million, offset by $13.3 million of accounts payable, $7.9 million of accrued expenses
and other current liabilities and $0.5 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 Phase 3 clinical trial in FM and our vaccine program.

The following table provides a
summary of operating, investing and financing cash flows for the years ended December 31, 2021, and 2020, respectively (in thousands):

For the
years ended December 31, 2021 and 2020, we used approximately $75.6 million and $48.6 million of cash in operating activities,
respectively, which represents cash outlays for research and development and general and administrative expenses in such periods.
The increase in cash outlays principally resulted from an increase in research and development and general and administrative
activities. For the year ended December 31, 2021 and 2020, net proceeds from financing activities were $212.5 million and $123.1
million, respectively, predominately from the sale of our common stock and exercise of warrants.

Cash
used by investing activities for the years ended December 31, 2021 and 2020 was approximately $35.3 million and $8.6 million,
respectively, related to the purchase of property and equipment.

For the year ended December 31, 2021 and 2020, net proceeds from financing
activities were $212.5 million and $123.1 million, respectively, predominately from the sale of our common stock and exercise of warrants.

We
believe that our cash resources at December 31, 2021 and the proceeds that we raised from equity offerings in the first quarter
of 2022 will meet our operating and capital expenditure requirements through the end of 2022, but not beyond.

We
continue to face significant challenges and uncertainties and, as a result, our available capital resources may be consumed more
rapidly than currently expected due to changes we may make in our research and development spending plans. These factors raise
substantial doubt about our ability to continue as a going concern for the one year period from the date of filing of this Form
10-K. We have the ability to 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
in an effort to provide sufficient funds to continue our operations. If any of these events occurs, our ability to achieve our
development and commercialization goals would be adversely affected.

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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 buildout of our research and development operations and manufacturing.
We will not have enough resources to meet our operating requirements for the one-year period from filing date of this report.

Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product
candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability
of financing and our success in developing markets for our product candidates.

We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include
the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to
raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts
owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common stock.

If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise
seek to develop or commercialize independently.

Purchase
Agreement with Lincoln Park

On
December 3, 2021, we entered into a purchase agreement (the “Purchase Agreement with Lincoln Park”) and a registration
rights agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln
Park”). Pursuant to the terms of the Purchase Agreement with Lincoln Park, Lincoln Park has agreed to purchase from us up
to $80,000,000 of our common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement.
Pursuant to the terms of the Lincoln Park 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 Purchase Agreement with
Lincoln Park.

Pursuant
to the terms of the Purchase Agreement with Lincoln Park, at the time we signed the Purchase Agreement with Lincoln Park and the
Lincoln Park Registration Rights Agreement, we issued 2,909,091 shares of common
stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the Purchase Agreement
with Lincoln Park. The commitment shares were valued at $1.6 million and recorded as an addition to equity for the issuance of
the common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase Agreement with Lincoln
Park.

No
shares were sold during the year ended December 31, 2021, under the Purchase agreement with Lincoln Park. Subsequent to December
31, 2021, we have sold 22.0 million shares of common stock under the Purchase Agreement with Lincoln Park, for net proceeds of
approximately $4.5 million.

2021
Lincoln Park Transaction

On
May 14, 2021, we entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement
(the “2021 Registration Rights Agreement”) with Lincoln Park. Pursuant to the terms of the 2021 Purchase Agreement,
Lincoln Park has agreed to purchase from us up to $80,000,000 of our common stock (subject to certain limitations) from time to
time during the term of the 2021 Purchase Agreement. Pursuant to the terms of the 2021 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 2021 Purchase Agreement.

Pursuant
to the terms of the 2021 Purchase Agreement, at the time we signed the 2021 Purchase Agreement and the 2021 Registration Rights
Agreement, we issued 1,280,000 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares of
our common stock under the 2021 Purchase Agreement. The commitment shares were valued at $1.6 million and recorded as an addition
to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the
2021 Purchase Agreement.

During
the year ended December 31, 2021, we sold an aggregate of approximately 64.5 million shares of common stock under the 2021 Purchase
Agreement, for gross proceeds of approximately $41.3 million.

81

Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of its common stock outstanding
immediately prior to the execution of the 2021 Purchase Agreement (approximately 64.5 million shares) to Lincoln Park under the
2021 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of its common stock to
Lincoln Park under the 2021 Purchase Agreement equals or exceeds a threshold amount. As we have issued approximately 64.5 million
shares to Lincoln Park, during the year end December 31, 2021, under the 2021 Purchase Agreement at less than the threshold amount,
we will not sell any additional shares under the 2021 Purchase Agreement without shareholder approval.

February
2021 Financing

On
February 8, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance
and sale of 58,333,334 shares of our common stock, in a registered direct public offering (“the February 2021 Financing”),
with A.G.P/Alliance Global Partners (“AGP”), acting as placement agent. The public offering price for each share of
common stock was $1.20. The February 2021 Financing closed on February 9, 2021. AGP received a cash fee of 7% of the gross proceeds,
for an aggregate amount of $4.9 million. We incurred other offering expenses of approximately $0.1 million. We received net proceeds
of approximately $65.0 million, after deducting the fees and other offering expenses.

January
2021 Financing

On
January 11, 2021, we entered into a securities purchase agreement with certain institutional investors relating to the issuance
and sale of 50,000,000 shares of its common stock in a registered direct public offering (“the January 2021 Financing”),
with AGP as placement agent. The public offering price for each share of common stock was $0.80. The January 2021 Financing closed
on January 13, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $2.8 million. We incurred other
offering expenses of approximately $0.3 million. The Company received net proceeds of approximately $36.9 million, after deducting
the fees and other offering expenses.

At-the-Market
Offerings

On
April 8, 2020, we entered into a sales agreement (the “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 $240.0 million in at-the-market
offerings (“ATM”) sales. On the same day, we filed a prospectus supplement under a shelf registration relating to
the Sales Agreement. 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
year ended December 31, 2021, we sold approximately 110.2 million shares of common stock under the Sales Agreement, for net proceeds
of approximately $69.3 million. Subsequent to December 31, 2021, we sold 15.6 million shares of common stock under the Sales Agreement,
for net proceeds of approximately $4.3 million.

2020
Lincoln Park Transaction

On
September 3, 2020, we entered into a purchase agreement (the “2020 Purchase Agreement”) and a registration rights
agreement (the “2020 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the 2020 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $30,000,000 of our common
stock (subject to certain limitations) from time to time during the term of the 2020 Purchase Agreement. Pursuant to the terms
of the 2020 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 2020 Purchase Agreement.

Pursuant
to the terms of the 2020 Purchase Agreement, we issued 600,000 shares of common stock to Lincoln Park as consideration for its
commitment to purchase shares of our common stock under the 2020 Purchase Agreement. The commitment shares were valued at $498,000
and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital
to be raised under the 2020 Purchase Agreement.

During
the year ended December 31, 2020, we sold an aggregate of approximately 25.4 million shares of common stock under the 2020 Purchase
Agreement, for gross proceeds of approximately $14.6 million.

Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the 2020 Purchase Agreement (approximately 26 million shares) to Lincoln Park under the
2020 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of our common stock to
Lincoln Park under the 2020 Purchase Agreement equals or exceeds a threshold amount. As we have issued approximately 26 million
shares to Lincoln Park, during the year end December 31, 2020, under the 2020 Purchase Agreement at less than the threshold amount,
we will not sell any additional shares under the 2020 Purchase Agreement without shareholder approval.

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July
2020 Financing

On
July 13, 2020, we entered into an underwriting agreement with AGP, relating to the issuance and sale of 20,940,000 shares of common
stock, in a registered direct public offering (“the July 2020 Financing”). The public offering price for each share
of common stock was $0.50. The July 2020 Financing closed on July 15, 2020. AGP purchased the shares at a seven percent discount,
for an aggregate discount of $0.7 million. We incurred other offering expenses of approximately $0.1 million. We received net
proceeds of approximately $9.6 million, after deducting the underwriting discount and other offering expenses.

March
2020 Financing

On
February 28, 2020, we entered into an underwriting agreement with AGP, relating to the issuance and sale of 14,550,000 shares
of our common stock, in a registered direct public offering (“the March 2020 Financing”). The public offering price
for each share of common stock was $1.10. The March 2020 Financing closed on March 3, 2020. AGP purchased the shares at a seven-percent
discount to the then current public price, for an aggregate discount of $1.1 million. We incurred other offering expenses of approximately
$0.1 million. We received net proceeds of approximately $14.8 million, after deducting the underwriting discount and other offering
expenses.

February
2020 Financing

On
February 7, 2020, we entered into an underwriting agreement with AGP pursuant to which we sold securities consisting of 3,837,000
Class A Units at a public offering price of $0.57 per unit, with each unit consisting of one share of common stock and one warrant
to purchase one share of common stock, and 5,313 Class B Units at a public offering price of $1,000 per unit, with each unit consisting
of one share of Series B Convertible Preferred Stock, with a conversion price of $0.57 per share, convertible into 1,754.386 shares
of common stock and warrants to purchase 1,754.386 shares of our common stock (“the February 2020 Financing”). The
warrants have an exercise price of $0.57, are immediately exercisable and expire five years from the date of issuance.

The
February 2020 Financing closed on February 11, 2020. AGP purchased the Class A and Class B Units at a seven-percent discount to
the public offering price, for an aggregate discount of approximately $0.5 million. We incurred other offering expenses of approximately
$0.5 million. We received net proceeds of approximately $6.5 million, after deducting the underwriting discount and other offering
expenses.

After
allocating proceeds to the warrants issued with the Series B Convertible Preferred Stock, the effective conversion price of the
Series B Convertible Preferred stock was determined to be less than the fair value of the underlying common stock at the date
of commitment, resulting in a beneficial conversion feature (“BCF”) at that date. Since the Series B Preferred Stock
has no stated maturity or redemption date and is immediately convertible at the option of the holder, the discount created by
the BCF of $1.3 million, based on intrinsic value, was charged to additional paid in capital as a non-cash “deemed dividend”
and included in net loss to common stockholders.

During
the first quarter of 2020, all 5,313 shares of Series B Convertible Preferred Stock were converted into common stock.

During
February and March 2020, 10.8 million of the warrants issued in the February 2020 Financing, with an exercise price of $0.57,
were exercised for proceeds of approximately $6.2 million.

During
August 2020, 2.2 million of the warrants issued in the February 2020 Financing, with an exercise price of $0.57, were exercised
for proceeds of approximately $1.3 million.

November
2019 Financing

On
November 14, 2019, we sold securities consisting of 547,420 Class A Units at a public offering price of $1.94 per unit, with each
unit consisting of one share of common stock, one warrant to purchase one share of common stock (“primary warrant”)
and one-half of one warrant to purchase one half of one share common stock (“common warrant”), and 7,938 Class B Units
at a public offering price of $1,000 per unit, with each unit consisting of one share of Series A Convertible Preferred Stock,
with a conversion price of $1.94 per share, convertible into 515.464 shares of common stock, primary warrants to purchase 515.464
shares of common stock, and common warrants to purchase 257.732 shares of our common stock. The primary warrants have an exercise
price of $1.94, are immediately exercisable and expire five years from the date of issuance. The common warrants had an exercise
price of $1.94 and expired 12 months from the date of issuance. The common warrants were exercisable on a cashless basis
at the option of the holder on the earlier of 30 days from issuance and the date by which an aggregate of $9.0 million of our
securities were traded.

With
the February 2020 Financing, warrants that were issued as part of the November 2019 Financing were repriced at $0.57. As a result
of the issuance of common stock in February 2020 for less than the November 2019 warrant exercise price, a repricing of the warrants
issued in the November 2019 Financing was triggered. We recognized a one-time non-cash “deemed dividend” of $0.5 million,
representing the increase in the fair value of the warrants. The “deemed dividend” was charged to additional paid
in capital and included in net loss to stockholders. During February and March 2020, 2.3 million of the warrants issued in the
November 2019 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately $1.3 million.

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2019
Lincoln Park Transaction

On
August 20, 2019, we entered into a purchase agreement (the “2019 Purchase Agreement”) and a registration rights agreement
(the “2019 Registration Rights Agreement”) with Lincoln Park. Pursuant to the terms of the 2019 Purchase Agreement,
Lincoln Park has agreed to purchase from us up to $15,000,000 of our common stock (subject to certain limitations) from time to
time during the term of the 2019 Purchase Agreement. Pursuant to the terms of the 2019 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 2019 Purchase Agreement.

Pursuant
to the terms of the 2019 Purchase Agreement, we issued 35,529 shares of common stock to Lincoln Park as consideration for its
commitment to purchase shares of our common stock under the 2019 Purchase Agreement. The commitment shares were valued at $200,000
and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital
to be raised under the 2019 Purchase Agreement.

As
a result of receiving stockholder approval on January 16, 2020, we may sell more than 19.9% of its common stock outstanding pursuant
to the 2019 Purchase Agreement without violating Nasdaq Marketplace Rules, including Rule 5635(d), requiring shareholder
approval for the sale, issuance or potential issuance by an issuer of common stock (or securities convertible into or exercisable
for common stock) at a price less than the greater of book or market value.

During
the year ended December 31, 2020, we sold an aggregate of approximately 464,471 shares of common stock under the 2019
Purchase Agreement, for gross proceeds of approximately $0.3 million.

Stock
Compensation

Stock
Options

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”).
The 2019 Plan provided for the issuance of up to 140,000 shares of common stock. With the adoption of the 2020 Plan (as defined
below), no further grants may be made under the 2019 Plan. On January 16, 2020, our stockholders approved the Tonix Pharmaceuticals
Holding Corp. 2020 Stock Incentive Plan (the “2020 Plan”). The 2020 Plan provided for the issuance of up to 600,000
shares of common stock. With the adoption of the Amended and Restated 2020 Plan (as defined below), no further grants may be made
under the 2020 Plan.

On
May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan
(“Amended and Restated 2020 Plan”), and together with the 2020 Plan and the 2019 Plan, the “Plans”).

Under
the terms of the Amended and Restated 2020 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock,
(3) SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided
for the issuance of up to 10,000,000 shares of common stock, which amount will be increased to the extent that awards granted
under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in the Amended and Restated 2020 Plan).
In addition, the Amended and Restated 2020 Plan contains an “evergreen provision” providing for an annual increase
in the number of shares of our common stock available for issuance under the Amended and Restated 2020 Plan on January 1 of each
year for a period of ten years, commencing on January 1, 2021 and ending on (and including) January 1, 2030, in an amount equal
to the difference between (x) twenty percent (20%) of the total number of shares of common stock outstanding on December 31st
of the preceding calendar year, and (y) the total number of shares of common stock reserved under the Amended and Restated 2020
Plan on December 31st of such preceding calendar year (including shares subject to outstanding awards, issued pursuant to awards
or available for future awards). The Board of Directors determines the exercise price, vesting and expiration period of the grants
under the Amended and Restated 2020 Plan. However, the exercise price of an incentive stock option may not be less than 110% of
fair value of the common stock at the date of the grant for a 10% or more shareholder and 100% of fair value for a grantee who
is not a 10% shareholder. The fair value of the common stock is determined based on quoted market price or in absence of such
quoted market price, by the Board of Directors in good faith. Additionally, the expiration period of grants under the Amended
and Restated 2020 Plan may not be more than ten years. As of December 31, 2021, 16,085,796 shares were available for future grants
under the Amended and Restated 2020 Plan. As of March 11, 2022, there are 32,939,410 shares
available for future grants under the 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 our common stock on the date of the grant. For employees and directors, the fair
value of the award is measured on the grant date. Most stock options granted pursuant to the Plans typically vest 1/3rd 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, subject to a one year minimum service period prior to vesting. Stock-based
compensation expense related to awards is amortized over the applicable vesting period using the straight-line method.

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The
weighted average grant date fair value of options granted during the years ended December 31, 2021 and 2020, was $1.06 and $0.66
per share, respectively.

Stock-based
compensation expense relating to options granted of $7.9 million, of which $5.5 million and $2.4 million, related to General and
Administration and Research and Development, respectively was recognized for the year ended December 31, 2021. Stock-based
compensation expense relating to options granted of $2.9 million, of which $2.0 million and $0.9 million, related to General and
Administration and Research and Development, respectively was recognized for the year ended December 31, 2020.

As
of December 31, 2021, we had approximately $14.2 million of unrecognized compensation cost related to non-vested awards granted
under the Plans, which we expect to recognize over a weighted average period of 1.91 years.

Employee
Stock Purchase Plan

On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan (the “2019
ESPP”). As a result of adoption of the 2020 ESPP, as defined below, by our stockholders, no further grants may be made under
the 2019 ESPP Plan. On May 1, 2020, our stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2020 Employee Stock Purchase
Plan (the “2020 ESPP”).

The
2020 ESPP allows eligible employees to purchase up to an aggregate of 300,000 shares of our common stock. Under the
2020 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 2020 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 2020 ESPP, subject to the statutory limit under the Code. As of December 31, 2021, 7 shares were available
for future sales under the 2020 ESPP.

The
2020 and 2019 ESPP are considered compensatory plans with the related compensation cost expensed over the six-month offering period.
For the year ended December 31, 2021, and 2020, $89,000 and $23,000, respectively, was expensed. In January 2020, 1,578 shares
that were purchased as of December 31, 2019, under the 2019 ESPP, were issued. Accordingly, during the first quarter of 2020,
approximately $2,000 of employee payroll deductions accumulated at December 31, 2019, related to acquiring such shares, was transferred
from accrued expenses to additional paid in capital. The remaining $7,000 was returned to the employees. As of December 31, 2020,
approximately $32,000 of employee payroll deductions have accumulated and have been recorded in accrued expenses. In January 2021,
54,447 shares that were purchased as of December 31, 2020, under the 2020 ESPP, were issued. Accordingly, during the first quarter
of 2021, approximately $28,000 of employee payroll deductions accumulated at December 31, 2020, related to acquiring such shares,
was transferred from accrued expenses to additional paid in capital. The remaining $4,000 was returned to the employees. In July
2021, 116,505 shares that were purchased as of June 30, 2021, under the 2020 ESPP, were issued. Accordingly, during July 2021,
approximately $68,000 of employee payroll deductions accumulated at June 30, 2021, related to acquiring such shares, was transferred
from accrued expenses to additional paid in capital. The remaining $7,000 was returned to the employees. In January 2022, 129,041
shares that were purchased as of December 31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of
2022, approximately $40,000 of employee payroll deductions accumulated at December 31, 2021, related to acquiring such shares,
was transferred from accrued expenses to additional paid in capital. The remaining $30,000 was returned to the employees.

Commitments

Research
and Development Contracts

We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately
$47.9 million at December 31, 2021 for future work to be performed.

We
have entered into a construction contract with outstanding commitments aggregating approximately $30.1 million at December 31,
2021 for future work to be performed.

On
March 3, 2021, we entered into a $2.9 million contingent non-binding Purchase and Sales Agreement in connection with a property
in Massachusetts. The property is intended for process development activities. The purchase is expected to close during the
second quarter of 2022.

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Operating
Leases

Future
minimum lease payments under operating leases were as follows (in thousands):

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 statements.

Research
and Development. We outsource 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 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.

Accounting
for sale of Class B Units in February 2020 including beneficial conversion feature. In connection with the February 2020 underwritten
offering, we issued warrants to purchase our common stock and convertible preferred stock. To account for the transaction, we
calculated the relative fair value of each instrument issued in the financing. We also determined if a beneficial conversion feature
existed. A beneficial conversion feature is defined as a nondetachable conversion feature that is in the money at the commitment
date. A conversion feature is in the money if its conversion price is less than the current fair value of the share. For purposes
of measuring a beneficial conversion feature, the effective conversion price should be based on the proceeds allocated to the
convertible instrument.

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We
determined the fair value of the warrants, using the Black Scholes method, for the February 2020 warrants. Estimates and assumptions
impacting the fair value measurement include the number of shares for which the warrants are exercisable, remaining contractual
term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying
common shares. We estimate expected share volatility based on our historical volatility for a term equal to the contractual term
of the warrants adjusted for a discount that a market participant would have taken when pricing the instrument. The risk-free
interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining
contractual term of the warrants. We estimated a 0% expected dividend yield based on the fact that we have never paid or declared
dividends and do not intend to do so in the foreseeable future. In general, the assumptions used in calculating the fair value
of the warrant represent management’s best estimates, but the estimates involve inherent uncertainties and the application
of management judgment. We determine the fair value of the convertible preferred stock utilizing the price of the common stock
on the commitment date. We then allocated the relative fair value between the preferred shares and the warrants. Since the effective
conversion price of the Preferred Stock is less than the fair value of the underlying common stock at the date of commitment,
there is a beneficial conversion feature at the commitment date. Since the Preferred Stock has no stated maturity or redemption
date and is immediately convertible at the option of the holder, the discount created by the beneficial conversion feature was
charged to additional paid in capital as a “deemed dividend” and impacted earnings per share, reflected as an increase
to loss to common stockholders.

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.