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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 For the Transition Period from _________ to _________

 

Commission file number: 001-36019

 

TONIX PHARMACEUTICALS HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

Nevada

 

26-1434750

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

26 Main Street, Suite 101

Chatham, New Jersey 07928

 

  

 (Address of principal executive offices) (zip code)

 

(862) 904-8182

 

 

 

(Registrant’s telephone number, including area code)

 

 Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

TNXP

The NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No  ☒.

 

As of November 5, 2021, there were 439,590,272 shares of registrant’s common stock outstanding.

 

 

 

 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

 

INDEX

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

Financial Statements

 

 

 

 

 

 

 

 

 

Condensed consolidated balance sheets as of September 30, 2021 (unaudited) and December 31, 2020

 

3

 

 

 

 

 

 

 

Condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2021 and 2020 (unaudited)

 

5

 

 

 

 

 

 

 

Condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 (unaudited)

 

6-7

 

 

 

 

 

 

 

Condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 (unaudited)

 

8

 

 

 

 

 

 

 

Notes to condensed consolidated financial statements (unaudited)

 

9-23

 

 

 

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

24-36

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

 

37

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

 

37

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

 

37

 

ITEM 1A.  

Risk Factors

 

37

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

ITEM 3.

Defaults Upon Senior Securities

 

38

 

ITEM 4.

Mine Safety Disclosures

 

38

 

ITEM 5.

Other Information

 

38

 

ITEM 6.

Exhibits

 

38

 

 

 

 

 

 

SIGNATURES

 

39

 

 

2 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

TONIX PHARMACEUTICALS HOLDING CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value and Share Amounts)

 

 

 

September 30,
2021

 

 

December 31,
2020

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

182,970

 

 

$

77,068

 

Prepaid expenses and other

 

 

12,112

 

 

 

10,921

 

Total current assets

 

 

195,082

 

 

 

87,989

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

18,233

 

 

 

8,571

 

 

 

 

 

 

 

 

 

 

Right-of-use assets, net

 

 

1,068

 

 

 

1,258

 

Security deposit

 

 

31

 

 

 

5

 

Restricted cash

 

 

240

 

 

 

240

 

Intangible asset

 

 

120

 

 

 

120

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

214,774

 

 

$

98,183

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,964

 

 

$

4,598

 

Accrued expenses and other current liabilities

 

 

3,479

 

 

 

4,626

 

Lease liability, current

 

 

583

 

 

 

595

 

Total current liabilities

 

 

12,026

 

 

 

9,819

 

 

 

 

 

 

 

 

 

 

Lease liability, net of current portion

 

 

530

 

 

 

716

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

12,556

 

 

 

10,535

 

 

 

 

 

 

 

 

 

 

Commitments (See Note 16)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized

 

 

 

 

 

 

 

 

Series B Convertible Preferred stock, $0.001 par value, 5,313 shares designated as of September 30, 2021 and December 31, 2020, 0 issued and outstanding

 

 

 

 

 

 

Series A Convertible Preferred stock, $0.001 par value, 7,938 shares designated as of September 30, 2021 and December 31, 2020, 0 issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 800,000,000 and 400,000,000 shares authorized as of September 30, 2021 and December 31, 2020, respectively; 403,673,156 and 206,008,683 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

404

 

 

 

206

 

Additional paid in capital

 

 

532,162

 

 

 

355,037

 

Accumulated deficit

 

 

(330,267

)

 

 

(267,533

)

Accumulated other comprehensive loss

 

 

(81

)

 

 

(62

)

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

202,218

 

 

 

87,648

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

214,774

 

 

$

98,183

 

 

See the accompanying notes to the condensed consolidated financial statements

 

3 

 

 

TONIX PHARMACEUTICALS HOLDING CORP. 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)

(unaudited)

 

                                 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

13,082

 

 

$

8,813

 

 

$

46,542

 

 

$

24,060

 

General and administrative

 

 

5,453

 

 

 

3,186

 

 

 

16,291

 

 

 

9,428

 

 

 

 

18,535

 

 

 

11,999

 

 

 

62,833

 

 

 

33,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(18,535

)

 

 

(11,999

)

 

 

(62,833

)

 

 

(33,488

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

7

 

 

 

9

 

 

 

99

 

 

 

46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(18,528

)

 

 

(11,990

)

 

 

(62,734

)

 

 

(33,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant deemed dividend

 

 

 

 

 

 

 

 

 

 

 

(451

)

Preferred stock deemed dividend

 

 

 

 

 

 

 

 

 

 

 

(1,260

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common stockholders

 

$

(18,528

)

 

$

(11,990

)

 

$

(62,734

)

 

$

(35,153

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.05

)

 

$

(0.09

)

 

$

(0.19

)

 

$

(0.49

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, basic and diluted

 

 

366,425,157

 

 

 

127,199,834

 

 

 

329,550,525

 

 

 

71,329,221

 

 

See the accompanying notes to the condensed consolidated financial statements

 

4 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In Thousands)

(unaudited)

 

                                 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(18,528

)

 

$

(11,990

)

 

$

(62,734

)

 

$

(33,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss (gain)

 

 

(10

)

 

 

5

 

 

(19

)

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(18,538

)

 

$

(11,985

)

 

$

(62,753

)

 

$

(33,460

)

 

See the accompanying notes to the condensed consolidated financial statements

 

5 

 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2021

(In Thousands, Except Share and Per Share Amounts) 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Series B Convertible

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

Paid in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (loss)

 

 

Deficit

 

 

Total

 

Balance, December 31, 2020

 

 

 

 

$

 

 

 

206,008,683

 

 

$

206

 

 

$

355,037

 

 

$

(62

)

 

$

(267,533

)

 

$

87,648

 

Issuance of common stock in exchange for exercise of warrants in March 2021 ($0.57 per share)

 

 

 

 

 

 

 

 

3,400

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Issuance of common stock in January 2021 ($0.80 per share), net of transactional expenses of $3,096

 

 

 

 

 

 

 

 

50,000,000

 

 

 

50

 

 

 

36,854

 

 

 

 

 

 

 

 

 

36,904

 

Issuance of common stock in February 2021 ($1.20 per share), net of transactional expenses of $5,002

 

 

 

 

 

 

 

 

58,333,334

 

 

 

58

 

 

 

64,939

 

 

 

 

 

 

 

 

 

64,997

 

Issuance of common stock in January 2021 under At-the-market offering, net of transactional expenses of $230

 

 

 

 

 

 

 

 

9,517,867

 

 

 

10

 

 

 

6,769

 

 

 

 

 

 

 

 

 

6,779

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

54,447

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,212

 

 

 

 

 

 

 

 

 

1,212

 

Foreign currency transaction gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

(1)

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,653

)

 

 

(20,653

)

Balance, March 31, 2021

 

 

 

 

$

 

 

 

323,917,731

 

 

$

324

 

 

$

464,841

 

 

$

(63

)

 

$

(288,186

)

 

$

176,916

 

Issuance of common stock in April and June 2021 under At-the-market offering, net of transactional expenses of $612

 

 

 

 

 

 

 

 

 

 

15,658,426

 

 

 

16

 

 

 

18,686

 

 

 

 

 

 

 

 

 

18,702

 

Issuance of commitment shares under 2021 Purchase Agreement

 

 

 

 

 

 

 

 

1,280,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under 2021 Purchase Agreement

 

 

 

 

 

 

 

 

2,750,000

 

 

 

3

 

 

 

3,344

 

 

 

 

 

 

 

 

 

3,347

 

Issuance of common stock in the acquisition of the OyaGen license

 

 

 

 

 

 

 

 

2,752,294

 

 

 

3

 

 

 

2,997

 

 

 

 

 

 

 

 

 

3,000

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,089

 

 

 

 

 

 

 

 

 

2,089

 

Foreign currency transaction gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,553

)

 

 

(23,553

)

Balance, June 30, 2021

 

 

 

 

$

 

 

 

346,358,451

 

 

$

346

 

 

$

491,957

 

 

$

(71

)

 

$

(311,739

)

 

$

180,493

 

Issuance of common stock in July, August and September 2021 under At-the-market offering, net of transactional expenses of $389

 

 

 

 

 

 

 

 

17,198,200

 

 

 

17

 

 

 

11,711

 

 

 

 

 

 

 

 

 

11,728

 

Issuance of common stock under 2021 Purchase Agreement

 

 

 

 

 

 

 

 

40,000,000

 

 

 

40

 

 

 

26,125

 

 

 

 

 

 

 

 

 

26,165

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

116,505

 

 

 

1

 

 

 

67

 

 

 

 

 

 

 

 

 

68

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,302

 

 

 

 

 

 

 

 

 

2,302

 

Foreign currency transaction gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10

)

 

 

 

 

 

(10

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,528

)

 

 

(18,528

)

Balance, September 30, 2021

 

 

 

 

$

 

 

 

403,673,156

 

 

$

404

 

 

$

532,162

 

 

$

(81

)

 

$

(330,267

)

 

$

202,218

 

 

See the accompanying notes to the condensed consolidated financial statements 

 

6 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2020

(In Thousands, Except Share and Per Share Amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Series B Convertible

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

Common stock

 

 

Paid in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (loss)

 

 

Deficit

 

 

Total

 

Balance, December 31, 2019

 

 

 

 

$

 

 

 

8,531,504

 

 

$

9

 

 

$

226,524

 

 

$

(46

)

 

$

(217,070

)

 

$

9,417

 

Issuance of common stock in exchange for exercise of warrants in February and March 2020 ($0.57 per share)

 

 

 

 

 

 

 

 

13,111,999

 

 

 

13

 

 

 

7,461

 

 

 

 

 

 

 

 

 

7,474

 

Deemed dividend in connection with repricing of November 2019 warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

451

 

 

 

 

 

 

 

 

 

451

 

Warrant deemed dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(451

)

 

 

 

 

 

 

 

 

(451

)

Issuance of Series B Convertible preferred stock and common stock warrants in February 2020 ($1,000.00 per share, net of transactional expenses of $711)

 

 

5,313

 

 

 

 

 

 

 

 

 

 

 

 

4,602

 

 

 

 

 

 

 

 

 

4,602

 

Beneficial conversion feature in connection with issuance of Series B Convertible preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,260

 

 

 

 

 

 

 

 

 

1,260

 

Preferred stock deemed dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,260

)

 

 

 

 

 

 

 

 

(1,260

)

Issuance of common stock and common stock warrants in February 2020 ($0.57 per share, net of transactional expenses $292)

 

 

 

 

 

 

 

 

3,837,000

 

 

 

4

 

 

 

1,891

 

 

 

 

 

 

 

 

 

1,895

 

Issuance of common stock upon conversion of Series B Convertible preferred stock

 

 

(5,313

)

 

 

 

 

 

9,321,053

 

 

 

9

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

Issuance of common stock in March 2020 ($1.10 per share, net of transactional expenses of $1,221)

 

 

 

 

 

 

 

 

14,550,000

 

 

 

14

 

 

 

14,770

 

 

 

 

 

 

 

 

 

14,784

 

Employee stock purchase plan

 

 

 

 

 

 

 

 

1,578

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

360

 

 

 

 

 

 

 

 

 

360

 

Foreign currency transaction gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,273

)

 

 

(7,273

)

Balance, March 31, 2020

 

 

 

 

 

 

 

 

49,353,134

 

 

 

49

 

 

 

255,601

 

 

 

(60

)

 

 

(224,343

)

 

 

31,247

 

Issuance of common stock in June 2020 under the equity line

 

 

 

 

 

 

 

 

464,471

 

 

 

1

 

 

 

277

 

 

 

 

 

 

 

 

 

278

 

Issuance of common stock in May and June 2020 under At-the-market offering, net of transaction expenses of $1,131

 

 

 

 

 

 

 

 

52,986,301

 

 

 

53

 

 

 

34,089

 

 

 

 

 

 

 

 

 

34,142

 

Issuance of common stock in the acquisition of Trigemina assets

 

 

 

 

 

 

 

 

2,000,000

 

 

 

2

 

 

 

1,358

 

 

 

 

 

 

 

 

 

1,360

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

733

 

 

 

 

 

 

 

 

 

733

 

Foreign currency transaction gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

(9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,179

)

 

 

(14,179

)

Balance, June 30, 2020

 

 

 

 

 

 

 

 

104,803,906

 

 

 

105

 

 

 

292,058

 

 

 

(69

)

 

 

(238,522

)

 

 

53,572

 

Issuance of common stock in July 2020, net of transaction expenses of $829

 

 

 

 

 

 

 

 

20,940,000

 

 

 

21

 

 

 

9,620

 

 

 

 

 

 

 

 

 

9,641

 

Issuance of common stock in September 2020 under At-the-market offering, net of transactional expenses of $267

 

 

 

 

 

 

 

 

9,282,236

 

 

 

9

 

 

 

7,997

 

 

 

 

 

 

 

 

 

8,006

 

Issuance of common stock in exchange for exercise of warrants in July and August 2020 (see Note 9)

 

 

 

 

 

 

 

 

4,533,404

 

 

 

5

 

 

 

2,417

 

 

 

 

 

 

 

 

 

2,422

 

Issuance of commitment shares under 2020 Purchase Agreement

 

 

 

 

 

 

 

 

600,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

912

 

 

 

 

 

 

 

 

 

912

 

Foreign currency transaction loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,990

)

 

 

(11,990

)

Balance, September 30, 2020

 

 

 

 

$

 

 

 

140,159,546

 

 

$

140

 

 

$

313,004

 

 

$

(64

)

 

$

(250,512

)

 

$

62,568

 

 

See the accompanying notes to the condensed consolidated financial statements 

 

7 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) 

(unaudited)

 

               

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(62,734

)

 

$

(33,442

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

23

 

 

 

20

 

Common stock issued to acquire in-process research and development

 

 

3,000

 

 

 

1,360

 

Stock-based compensation

 

 

5,603

 

 

 

2,005

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other

 

 

(1,217

)

 

 

(3,662

)

Accounts payable

 

 

3,370

 

 

 

(1,301

)

Operating lease liabilities and ROU asset, net

 

 

(10

 

 

8

 

Accrued expenses and other current liabilities

 

 

(1,147

 

 

360

 

Net cash used in operating activities

 

 

(53,112

)

 

 

(34,652

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(9,685

)

 

 

(4,030

)

Net cash used in investing activities

 

 

(9,685

)

 

 

(4,030

)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercise of warrants

 

 

2

 

 

 

9,896

 

Proceeds from ESPP

 

 

96

 

 

 

2

 

Proceeds, net of $0 and $711 expenses, from sale of preferred stock

 

 

 

 

 

4,602

 

Proceeds, net of $9,329 and $3,740 expenses, from sale of common stock and warrants

 

 

168,622

 

 

 

68,746

 

Net cash provided by financing activities

 

 

168,720

 

 

 

83,246

 

 

 

 

 

 

 

 

 

 

Effect of currency rate change on cash

 

 

(21

)

 

 

(16

)

 

 

 

 

 

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

 

105,902

 

 

 

44,548

 

Cash, cash equivalents and restricted cash beginning of the period

 

 

77,308

 

 

 

11,349

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash end of period

 

$

183,210

 

 

$

55,897

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Warrants deemed dividend

 

$

 

 

$

451

 

Series B Convertible preferred stock and deemed dividend

 

$

 

 

$

1,260

 

 

See the accompanying notes to the condensed consolidated financial statements   

 

8 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

NOTE 1 – BUSINESS 

 

Tonix Pharmaceuticals Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a clinical-stage biopharmaceutical company focused on discovering, licensing, acquiring and developing therapeutics and diagnostics to treat and prevent human disease and alleviate suffering. The therapeutics include small molecules and biologics and all drug product and diagnostic candidates are still in development.

 

The consolidated financial statements include the accounts of Tonix Pharmaceuticals Holding Corp. and its wholly owned subsidiaries, Tonix Sub, Krele LLC, Tonix Pharmaceuticals (Canada), Inc., Tonix Medicines, Inc., Jenner LLC, Tonix R&D Center LLC, Tonix Pharma Holdings Limited and Tonix Pharma Limited (collectively hereafter referred to as the “Company” or “Tonix”). All intercompany balances and transactions have been eliminated in consolidation.

 

Going Concern

 

The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses from operations and negative cash flows from operating activities. At September 30, 2021, the Company had working capital of approximately $183.1 million. At September 30, 2021, the Company had an accumulated deficit of approximately $330.3 million. The Company held unrestricted cash and cash equivalents of approximately $183.0 million as of September 30, 2021.

 

The Company believes that its cash resources at September 30, 2021, and the gross proceeds of approximately $19.8 million, that it raised from equity offerings subsequent to the end of the third quarter of 2021 (See Note 12), will meet its operating and capital expenditure requirements through September 30, 2022, but not beyond.

 

 These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company continues to face significant challenges and uncertainties and, as a result, its available capital resources may be consumed more rapidly than currently expected due to changes it may make in its research and development spending plans. The Company has the ability to obtain additional funding through public and private financing and collaborative arrangements with strategic partners to increase the funds available to fund operations. However, the Company may not be able to raise capital on terms acceptable to the Company. Without additional funds, it may be forced to delay, scale back or eliminate some of its research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue operations. If any of these events occurs, our ability to achieve our development and commercialization goals would be adversely affected. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES 

 

Interim financial statements

 

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

 

The condensed consolidated balance sheet as of December 31, 2020 contained herein has been derived from audited financial statements.

 

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 15, 2021. 

 

9 

 

 

TONIX PHARMACEUTICALS HOLDING CORP. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

Risks and uncertainties

 

The Company’s primary efforts are devoted to conducting research and development of innovative pharmaceutical and biological products to address public health challenges. The Company has experienced net losses and negative cash flows from operations since inception and expects these conditions to continue for the foreseeable future. Further, the Company does not have any commercial products available for sale and has not generated revenues, and there is no assurance that if its products are approved for sale, that the Company will be able to generate cash flow to fund operations. In addition, there can be no assurance that the Company’s research and development will be successfully completed or that any product will be approved or commercially viable. Moreover, the extent to which COVID-19 impacts the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time.

 

 Use of estimates

 

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assumptions used in the fair value of stock-based compensation and other equity instruments, and the percent of completion of research and development contracts.

 

Cash, Cash Equivalents and Restricted Cash

 

The Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original maturity of three months or less when purchased. At September 30, 2021 and December 31, 2020, cash equivalents, which consisted of money market funds, amounted to $100.4 million and $40.4 million, respectively. Restricted cash at both September 30, 2021 and December 31, 2020 of approximately $240,000 collateralizes a letter of credit issued in connection with the lease of office space in Chatham, New Jersey and New York, New York (see Note 15).

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statement of cash flows:

 

               

 

 

 

September 30,
2021

 

 

December 31,
2020

 

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

182,970

 

$

77,068

 

Restricted cash

 

 

240

 

 

240

 

Total

 

$

183,210

 

$

77,308

 

 

 

Property and equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated useful life, which is 20 years for buildings, three years for computer assets, five years for furniture and all other equipment and term of lease for leasehold improvements. Depreciation on assets begin when the asset is placed in service. Depreciation and amortization expense for the three and nine months ended September 30, 2021 was $10,000 and $23,000, respectively, and $8,000 and $20,000, respectively, for the three and nine months ended September 30, 2020. All property and equipment are located in the United States and Ireland.

 

Intangible assets with indefinite lives

 

During the year ended December 31, 2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life. Identifiable intangibles with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances indicate that their carrying amount may be less than fair value. As of September 30, 2021, the Company believed that no impairment existed. 

 

10 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the transition date and subsequent lease commencement dates in determining the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar term to each lease. The operating lease ROU asset excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments made under operating leases is recognized on a straight-line basis over the lease term.

 

Research and Development Costs

 

The Company outsources certain of its research and development efforts and expenses these costs as incurred, including the cost of manufacturing products for testing, as well as licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired has been expensed as research and development costs, as such property related to particular research and development projects and had no alternative future uses.

 

The Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company accounts for trial expenses according to the timing of various aspects of the trial. The Company determines accrual estimates taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed.

 

During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

 

Stock-based compensation

 

All stock-based payments to employees and to nonemployees for their services, including grants of restricted stock units (“RSUs”), and stock options, are measured at fair value on the grant date and recognized in the consolidated statements of operations as compensation or other expense over the requisite service period. The Company accounts for share-based awards in accordance with the provisions of the Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation.

 

Foreign Currency Translation

 

Operations of the Company’s Canadian subsidiary, Tonix Pharmaceuticals (Canada), Inc., are conducted in local currency, which represents its functional currency. The U.S. dollar is the functional currency of the other foreign subsidiaries. Balance sheet accounts of the Canadian subsidiary were translated from foreign currency into U.S. dollars at the exchange rate in effect at the balance sheet date and income statement accounts were translated at the average rate of exchange prevailing during the period. Translation adjustments resulting from this process were included in accumulated other comprehensive loss on the condensed consolidated balance sheets.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income (loss) represents foreign currency translation adjustments.  

 

11 

 

 

TONIX PHARMACEUTICALS HOLDING CORP. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

Income Taxes

 

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records a valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of September 30, 2021, the Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  

 

 Per Share Data 

 

The computation of basic and diluted loss per share for the quarters ended September 30, 2021 and 2020 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

 

 All warrants issued participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of Directors, on the Company’s common stock. For purposes of computing earnings per share (“EPS”), these warrants are considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. No income was allocated to the warrants for the three and nine months ended September 30, 2021, as results of operations were a loss for the period.

 

Potentially dilutive securities excluded from the computation of basic and diluted net loss per share, as of September 30, 2021 and 2020, are as follows:

 

 

 

 

2021

 

 

2020

 

Warrants to purchase common stock

 

 

644,906

 

 

650,806

 

Options to purchase common stock

 

 

25,780,349

 

 

10,209,286

 

Totals

 

 

26,425,255

 

 

10,860,092

 

 

 

 

12 

 

 

TONIX PHARMACEUTICALS HOLDING CORP.  

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

NOTE 3 – PROPERTY AND EQUIPMENT, NET

 

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

 

 

 

 

September 30
2021

 

 

December 31
2020

 

 

 

 

(in thousands)

 

Property and equipment, net:

 

 

 

 

 

 

 

Land and Buildings

 

$

5,713

 

$

5,713

 

Construction in progress

 

 

12,374

 

 

2,800

 

Office furniture and equipment

 

 

496

 

 

385

 

Leasehold improvements

 

 

23

 

 

23

 

 

 

 

18,606

 

 

8,921

 

Less: Accumulated depreciation and amortization

 

 

(373

)

 

(350

)

 

 

$

18,233

 

$

8,571

 

 

On September 28, 2020, the Company completed the purchase of its 4.0 million square foot facility in Massachusetts for $4,000,000, to house its new Advanced Development Center for the development and manufacturing of vaccines. Of the total purchase price, $1.2 million was allocated to the value of land acquired, and $2.8 million was allocated to construction in progress, as the building was not ready for its intended use. Additionally, we have incurred approximately $9.6 million in work-in-process, which is included in construction in progress as of September 30, 2021. As of September 30, 2021, the asset has not been placed in service.

 

On December 23, 2020, the Company completed the purchase of its approximately 44-acre site in Hamilton, Montana for $4.4 million, for the construction of a vaccine development and commercial scale manufacturing facility. As of September 30, 2021, the asset has not been placed in service.

 

NOTE 4 – FAIR VALUE MEASUREMENTS

 

Fair value measurements affect the Company’s accounting for certain of its financial assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured according to a hierarchy that includes:

 

 

Level 1:

Observable inputs, such as quoted prices in active markets.

 

 

Level 2:

Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category includes U.S. government agency-backed debt securities and corporate-debt securities.

 

 

Level 3:

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

 

As of September 30, 2021, and December 31, 2020, the Company used Level 1 quoted prices in active markets to value cash equivalents of $100.4 million and $40.4 million, respectively. The Company did not have any Level 2 or Level 3 assets or liabilities as of both September 30, 2021 and December 31, 2020.

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

On March 26, 2021, the Company filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 400,000,000 to 800,000,000.

 

On September 3, 2021, the Company received a letter (the “Notice”) from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer meets the requirement to maintain a minimum bid price of $1 per share, as set forth in Nasdaq Listing Rule 55450(a)(1) (the “Minimum Bid Price Requirement”).

 

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of 180 calendar days, or until March 2, 2022, in which to regain compliance. In order to regain compliance with the Minimum Bid Price Requirement, the closing bid price of the Company’s common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it meets the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Global Market, with the exception of the Minimum Bid Price Requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during this second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the Nasdaq Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice to the Company that its common stock will be subject to delisting. 

 

13 

 

 

TONIX PHARMACEUTICALS HOLDING CORP. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

NOTE 6 – ASSET PURCHASE AGREEMENT WITH KATANA 

 

On December 22, 2020, the Company entered into an asset purchase agreement (the “Katana Asset Purchase Agreement”) with Katana Pharmaceuticals, Inc. (“Katana”) pursuant to which Tonix acquired Katana assets related to insulin resistance and related syndromes, including obesity (the “Katana Assets”). In connection with the acquisition of the Katana Assets, Tonix 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 Katana Asset Purchase Agreement, Tonix 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 has granted to Tonix an exclusive license, with the right to sublicense, certain patents related to the Katana Assets. Tonix is 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 September 30, 2021, no milestone payments have been accrued or paid in relation to this agreement.

 

NOTE 7 – ASSET PURCHASE AGREEMENT WITH TRIGEMINA 

 

On June 11, 2020, the Company 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 Tonix acquired Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection with the acquisition of the Trigemina Assets, Tonix 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 Asset Purchase Agreement, Tonix paid $824,759 to Trigemina and issued to Trigemina 2,000,000 shares of the Company’s common stock, valued at $0.68 per share, based on the closing stock price on June 11, 2020, 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 the shareholders of the Company 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 expenses 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 to Tonix 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. Tonix is 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 Trigemina 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 September 30, 2021, no milestone payments have been accrued or paid in relation to this agreement.

 

NOTE 8 – ASSET PURCHASE AGREEMENT WITH TRIMARAN

 

On August 19, 2019, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with TRImaran Pharma, Inc. (“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant to which Tonix acquired TRImaran’s assets related to certain pyran-based compounds (the “Assets”). In connection with the acquisition of the Assets, Tonix 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 Asset Purchase Agreement, Tonix paid $100,000 to TRImaran and has assumed certain liabilities of TRImaran totaling $68,500. Upon the achievement of specified development, regulatory and sales milestones, Tonix also agreed to pay TRImaran and the Selling Shareholders, in restricted stock or cash, at Tonix’s option, a total of approximately $3.4 million. Pursuant to the terms of the Asset Purchase Agreement, TRImaran and the Selling Shareholders are prohibited from disclosing confidential information related to the 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. 

 

14 

 

 

TONIX PHARMACEUTICALS HOLDING CORP. 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

SEPTEMBER 30, 2021 AND 2020 (UNAUDITED)

 

Pursuant to the terms of the WSU License Agreement, WSU has granted to Tonix an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”) related to the Assets. WSU has reserved for itself the right to practice the Technology for academic research and educational purposes. Tonix is 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. Tonix is 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, Tonix paid $75,000 to WSU as reimbursement of certain patent expenses, and, upon the achievement of specified development, regulatory and sales milestones, the Company also agreed to pay WSU, milestone payments totaling approximately $3.4 million. Tonix has also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by Tonix 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 Tonix to any third party for intellectual property rights which are necessary for the practice of the rights licensed to Tonix 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 September 30, 2021, no milestone payments have been accrued or paid in relation to this agreement.  

 

NOTE 9 – LICENSE AGREEMENT WITH OYAGEN

 

On April 14, 2021, the Company and OyaGen, Inc. (“OyaGen”) entered into an exclusive License Agreement (the “OyaGen License Agreement”) pursuant to which OyaGen granted to Tonix 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, Tonix agreed to pay a low-seven digit license fee to OyaGen, and agreed to issue to OyaGen and an affiliated entity an aggregate of 2,752,294 shares of the Company’s 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 shareholders of the Company 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. 

 

As of September 30, 2021, no milestone payments have been accrued or paid in relation to this agreement

 

NOTE 10 – LICENSE AGREEMENT WITH INSERM

 

On February 11, 2021, the Company entered into a license agreement (the “Inserm License Agreement”) pursuant to which it licensed technology using oxytocin-based therapeutics for the treatment of Prader-Willi syndrome and non-organic failure to thrive disease from Inserm (the French National Institute of Health and Medical Research), Aix-Marseille Université and Centre Hospitalier Universitaire of Toulouse. The Inserm License Agreement provides for the payment of annual fees and milestone payments upon the occurrence of specified sales milestones totaling approximately $0.4 million, as well royalties on net sales of products based on the licensed technology, and assignment/transfer and sublicense royalties.

 

As of September 30, 2021, no milestone payments have been accrued or paid in relation to this agreement 

 

NOTE 11 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY

 

On September 16, 2019, the Company 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 Tonix 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 reserved for itself the right to practice the TFF2 Technology for academic research and educational purposes.

 

The Company paid a five-digit license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research and development expenses in the statement of operations for the year ended December 31, 2019. The Company is 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.

 

The Company agreed to pay Columbia single-digit royalties on net sales of (i) TFF2 Products sold by Tonix or a sublicensee and (ii) any other products that involve material or technical information related to the TFF2 Product and transferred to Tonix pursuant to the Columbia License Agreement (“Other Products”) sold by Tonix 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 Tonix to any third party for intellectual property rights which are necessary for the practice of the rights licensed to Tonix under the Columbia License Agreement, provided that the royalty payable on a Product or Other Product may not be reduced by more than