Tonix Pharmaceuticals Holding Corp. (TNXP) FY 2021 MD&A

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.

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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.

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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%.

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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.

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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.

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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.

84

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.

86

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.