Tonix Pharmaceuticals Holding Corp. (TNXP) FY 2023 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.”.

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.

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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.

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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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