UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the Quarterly Period Ended
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:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) | |
(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 |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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 | ☐ | |||
| ☒ | 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 ☐
As of November 9, 2023, there were shares of registrant’s common stock outstanding.
TONIX PHARMACEUTICALS HOLDING CORP.
INDEX
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, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Inventory | ||||||||
Receivables, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right-to-use assets | ||||||||
| Other non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Lease liability, short term | ||||||||
| Total current liabilities | ||||||||
| Lease liability, long term | ||||||||
| Total liabilities | ||||||||
| Commitments (See Note 19) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized | ||||||||
| Series B Convertible Preferred stock, shares designated as of both September 30, 2023 and December 31, 2022; issued and outstanding - | ||||||||
| Series A Convertible Preferred stock, shares designated as of both September 30, 2023 and December 31, 2022; issued and outstanding - | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively and shares to be issued as of December 31, 2022 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| REVENUE: | ||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | ||||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Costs and Expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income, net | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock deemed dividend | ||||||||||||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
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, 2023
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common stock | Paid in | Comprehensive | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | Gain (loss) | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Repurchase of common stock under Share Repurchase Program | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of common stock under 2022 Purchase agreement | ||||||||||||||||||||||||
| Issuance of common stock under At-the-market offering, net of transactional expenses of $ | ||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock under At-the-market offering, net of transactional expenses of $ | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock under AGP Financing, net of transactional expenses of $ | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of prefunded warrants under AGP Financing | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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, 2022
(In Thousands, Except Share and Per Share Amounts)
(unaudited)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common stock | Paid in | Comprehensive | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | Gain (loss) | Deficit | Total | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Issuance of common stock in January and March 2022 under At-the-market offering, net of transactional expenses of $ | ||||||||||||||||||||||||
| Issuance of common stock under 2021 Purchase agreement | ||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common stock in April, May and June 2022 under At-the-market offering, net of transaction expenses of $ | ||||||||||||||||||||||||
| Issuance of common stock under 2021 Purchase agreement | ||||||||||||||||||||||||
| Preferred stock dividend | — | ( | ) | ( | ) | |||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common stock in July, August and September 2022 under At-the-market offering, net of transactional expenses of $ | ||||||||||||||||||||||||
| Issuance of common stock under the 2021 Purchase agreement | ||||||||||||||||||||||||
| Issuance of commitment shares under 2022 Purchase Agreement | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction gain | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
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, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
Receivables, net | ( | ) | ||||||
| Prepaid expenses and other | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liabilities and ROU asset, net | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of a business | ( | ) | ||||||
| Disposal of property and equipment | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from ESPP | ||||||||
| Proceeds, net of $ | ||||||||
| Redemption of convertible redeemable preferred stock | ( | ) | ||||||
| Repurchase of common stock | ( | ) | ||||||
| Proceeds, net of $ | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of currency rate change on cash | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Non-cash financing and investing activities: | ||||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | $ | ( | ) | ||||
| Preferred stock deemed dividend | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements
8
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
NOTE 1 – BUSINESS
Tonix Pharmaceuticals Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a biopharmaceutical company focused on commercializing, developing, discovering and licensing therapeutics to treat and prevent human disease and alleviate suffering. The therapeutics under development include both small molecules and biologics. Tonix, through its recent acquisition, markets Zembrace® SymTouch® (sumatriptan injection) 3 mg and Tosymra® (sumatriptan nasal spray) 10 mg. Zembrace® SymTouch® and Tosymra®, which were acquired as of June 30, 2023 (See Note 10), are each indicated for the treatment of acute migraine with or without aura in adults. All other drug product and vaccine candidates are still in development, and are not approved or marketed.
The condensed 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, 2023, the Company had working
capital of approximately $
The Company believes that its cash resources at September 30, 2023 and the proceeds that it raised from equity offerings in the fourth quarter of 2023 (See Note 20), will not meet its operating and capital expenditure requirements through the fourth quarter of 2023.
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 must 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, or at all. 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, its ability to achieve our development and commercialization goals would be adversely affected and the Company may be forced to cease operations. 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, 2022 contained herein has been derived from audited financial statements.
Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. 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, 2022 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 13, 2023.
Reverse Stock Split
On May 9, 2023, the
Company filed a Certificate of Change with the Nevada Secretary of State, effective May 10, 2023. Pursuant to the Certificate of
Change, the Company effected a
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 now has commercial products available for sale, and generates revenue from the sale of its Zembrace® SymTouch® and Tosymra® products, with no assurance that the Company will be able to generate sufficient cash flow to fund operations from its commercial products or products in development if and when approved. 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.
9
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
Use of estimates
The preparation of financial statements in accordance with Generally Accepted Accounting Principles (“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, but are not limited to, provisions for product returns, coupons, rebates, chargebacks, discounts, allowances, inventory realization, the assumptions used in the fair value of stock-based compensation and other equity instruments, the percent of completion of research and development contracts, fair value estimates for assets acquired in business combinations, and assessment of useful lives of acquired intangible assets.
Business Combinations
The Company accounts for business combinations in accordance with the provisions of ASC 805, Business Combinations and ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. Business combinations are accounted for using the acquisition method, whereby the consideration transferred is allocated to the net assets acquired based on their respective fair values measured on the acquisition date. The difference between the fair value of these assets and the purchase price is recorded as goodwill. Transaction costs other than those associated with the issue of debt or equity securities, and other direct costs of a business combination are not considered part of the business acquisition transaction and are expensed as incurred.
Segment Information and Concentrations
Operating segments are
defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating
decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views
its operations and manages its business in
The Company has two
products that each accounted for more than
As
of September 30, 2023, accounts receivable from four customers accounted for
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, 2023 and December 31, 2022, cash equivalents, which consisted of money market
funds, amounted to $
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, 2023 |
September 30, 2022 |
|||||||
| (in thousands) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total | $ | $ | ||||||
Accounts Receivable, net
Accounts receivable consists of amounts due from our wholesale and other third-party distributors and pharmacies and have standard payment terms that generally require payment within 30 to 90 days. For certain customers, the accounts receivable for the customer is net of prompt payment or specialty pharmacy discounts. We do not adjust our receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We provide reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay. Amounts determined to be uncollectible are charged or written-off against the reserve. However, during the period covered by the Transition Services Agreement, the Seller has agreed to collect the accounts receivable on behalf of the Company and net settle within 45 days from each month-end. See note 10 for further details. The Company had no accounts receivable as of any prior period presented other than as of September 30, 2023.
As of September 30, 2023, the Company did not have an allowance for doubtful accounts. An allowance for doubtful accounts is determined based on the financial condition and creditworthiness of customers and the Company considers economic factors and events or trends expected to affect future collections experience. Any allowance would reduce the net receivables to the amount that is expected to be collected. The payment history of the Company’s customers will be considered in future assessments of collectability as these patterns are established over a longer period.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk include cash and cash equivalents, and accounts receivable. We attempt to minimize the risks related to cash and cash equivalents by investing in a broad and diverse range of financial instruments, and we have established guidelines related to credit ratings and maturities intended to safeguard principal balances and maintain liquidity. Concentrations of credit risk with respect to receivables, which are typically unsecured, are somewhat mitigated due to the wide variety of customers using our products, as well as their dispersion across different geographic areas.
10
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
We monitor the financial performance and creditworthiness of our customers so that we can properly assess and respond to changes in their credit profile. We continue to monitor these conditions and assess their possible impact on our business.
Inventories
Inventories are recorded
at the lower of cost or net realizable value, with cost determined by the weighted average cost method. The Company periodically
reviews the composition of inventory in order to identify excess, obsolete, slow-moving or otherwise non-saleable items taking
into account anticipated future sales compared with quantities on hand, and the remaining shelf life of goods on hand. If non-saleable
items are observed and there are no alternate uses for the inventory, the Company records a write-down to net realizable value
in the period that the decline in value is first recognized. Although the Company makes every effort to ensure the accuracy of
forecasts of future product demand, any significant unanticipated decreases in demand could have a material impact on the carrying
value of inventories and reported operating results. The Company’s reserves were approximately $
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 ranges from
Intangible assets, net
Intangible assets deemed
to have finite lives are carried at acquisition-date fair value less accumulated amortization and impairment, if any. Finite-lived
intangible assets consist of developed technology intangible assets acquired in connection with the acquisition of certain products
from Upsher Smith Laboratories, LLS (“USL Acquisition”) consummated on June 30, 2023 (See Note 8). The acquired intangible
assets are amortized using the straight-line method over the estimated useful lives of the respective assets. Amortization expense
for the three months ended September 30, 2023, was $
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, which are included in Intangible assets, net on the condensed consolidated balance sheet, 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, 2023, the Company believed that no impairment existed.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. 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. As of September 30, 2023, the Company has recognized goodwill in connection with the USL Acquisition consummated on June 30, 2023 (See Note 8).
Leases
The Company determines if an arrangement is, or contains, 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.
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.
Revenue Recognition
The
Company records and recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The Company’s revenues primarily result from contracts with customers, which are generally short-term and have a single
performance obligation - the delivery of product. The Company’s performance obligation to deliver products is satisfied
at the point in time that the goods are received by the customer, which is when the customer obtains title to and has the
risks and rewards of ownership of the products, which is generally upon shipment or delivery to the customer as stipulated by
the terms of the sale agreements. The transaction price is the amount of consideration to
which the Company expects to be entitled in exchange for transferring promised goods to a customer. The consideration promised
in a contract with a customer may include fixed amounts, variable amounts, or both. Our contractual payment terms are typically
11
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
Revenues from product sales, net of gross-to-net deductions, are recorded only to the extent a significant reversal in the amount of cumulative revenue recognized is not probable of occurring and when the uncertainty associated with gross-to-net deductions is subsequently resolved. Taxes assessed by governmental authorities and collected from customers are excluded from product sales. Shipping and handling activities are considered to be fulfillment activities and not a separate performance obligation.
Many of the Company’s products sold are subject to a variety of deductions. Revenues are recognized net of estimated rebates and chargebacks, cash discounts, distributor fees, sales return provisions and other related deductions. Deductions to product sales are referred to as gross-to-net deductions and are estimated and recorded in the period in which the related product sales occur. Accruals for these provisions are presented in the consolidated financial statements as reductions to gross sales in determining net sales, and as a contra asset within accounts receivable, net (if settled via credit) and other current liabilities (if paid in cash). Amounts recorded for revenue deductions can result from a complex series of judgements about future events and uncertainties and can rely heavily on estimates and assumptions. The following section briefly describes the nature of the Company’s provisions for variable consideration and how such provisions are estimated:
Chargebacks - The Company sells a portion of its products indirectly through wholesaler distributors, and enters into specific agreements with these indirect customers to establish pricing for the Company’s products, and in-turn, the indirect customers and entities independently purchase these products. Because the price paid by the indirect customers and/or entities is lower than the price paid by the wholesaler, the Company provides a credit, called a chargeback, to the wholesaler for the difference between the contractual price with the indirect customers and the wholesale customer’s purchase price. The Company’s provision for chargebacks is based on expected sell-through levels by the Company’s wholesale customers to the indirect customers and estimated wholesaler inventory levels as well as historical chargeback rates. The Company continually monitors its reserve for chargebacks and adjusts the reserve accordingly when expected chargebacks differ from actual experience.
Rebates - The Company participates in certain government and specific sales rebate programs which provides discounted prescription drugs to qualified recipients, and primarily relate to Medicaid and managed care rebates in the U.S., pharmacy rebates, Tri-Care rebates and discounts, specialty pharmacy program fees and other governmental rebates or applicable allowances.
| ● | Managed Care Rebates are processed in the quarter following the quarter in which they are earned. The managed care reporting entity submits utilization data after the end of the quarter and the Company processes the payment in accordance with contract terms. All rebates earned but not paid are estimated by the Company according to historical payments trended for market growth assumptions. |
| ● | Medicaid and State Agency rebates are based upon historical experience of claims submitted by various states. The Company monitors Medicaid legislative changes to determine what impact such legislation may have on the provision for Medicaid rebates. The accrual of State Agency reserves is based on historical payment rates. There is an approximate three-month lag from the time of product sale until the rebate is paid. |
| ● | Tri-Care represents a regionally managed health care program for active duty and retired members, dependents and survivors of the US military. The Tri-Care program supplements health care resources of the US military with civilian health care professionals for greater access and quality healthcare coverage. Through the Tri-Care program, the Company provides pharmaceuticals on a direct customer basis. Prices of pharmaceuticals sold under the Tri-Care program are pre-negotiated and a reserve amount is established to represent the proportionate rebate amount associated with product sales. |
| ● | Coverage Gap refers to the Medicare prescription drug program and represents specifically the period between the initial Medicare Part D prescription drug program coverage limit and the catastrophic coverage threshold. Applicable pharmaceutical products sold during this coverage gap timeframe are discounted by the Company. Since the nature of the program is that coverage limits are reset at the beginning of the calendar year; the payments escalate each quarter as the participants reach the coverage limit before reaching the catastrophic coverage threshold. The Company has determined that the cost of this reserve will be viewed as an annual cost. Therefore, the accrual will be incurred evenly during the year with quarterly review of the liability based on payment trends and any revision to the projected annual cost. |
Prompt-Pay and other Sales Discounts - The Company provides for prompt pay discounts, which early payments are recorded as a reduction of revenue and as a reduction in the accounts receivable at the time of sale based on the customer’s contracted discount rate. Consumer sales discounts represent programs the Company has in place to reduce costs to the patient. This includes copay buy down and eVoucher programs.
Product Returns - Consistent with industry practice, the Company offers customers a right to return any unused product. The customer’s right of return commences typically six months prior to product expiration date and ends one year after product expiration date. Products returned for expiration are reimbursed at current wholesale acquisition cost or indirect contract price. The Company estimates the amount of its product sales that may be returned by the Company’s customers and accrues this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company estimates products returns as a percentage of sales to its customers. The rate is estimated by using historical sales information, including its visibility and estimates into the inventory remaining in the distribution channel. Adjustments are made to the current provision for returns when data suggests product returns may differ from original estimates.
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 is related to particular research and development projects and had no alternative future uses.
12
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
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.
Government Grants
From time to time, the
Company may enter into arrangements with governmental entities for the purpose of obtaining funding for research and development
activities. The Company is reimbursed for costs incurred that are associated with specified research and development activities
included in the grant application approved by the government authority. The Company classifies government grants received under
these arrangements as a reduction to the related research and development expense in the same period as the relevant expenses are
incurred. In August 2022, the Company announced that it 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 three and nine months ended September 30, 2023, we received $
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 condensed 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 consolidated condensed 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.
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, 2023, 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.
The computation of basic and diluted loss per share for the quarters ended September 30, 2023 and 2022 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 and preferred stock 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 EPS, these warrants and preferred stock 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 and preferred stock for the three and nine months ended September 30, 2023, and 2022, as results of operations were a loss for the periods.
| 2023 | 2022 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Totals | ||||||||
13
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. The Company 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 the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company 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.
NOTE 3 – INVENTORY
The components of inventory consisted of the following as of September 30, 2023:
| September
30, 2023 |
December
31, 2022 |
|||||||
| (in thousands) | ||||||||
| Raw Materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished Goods | ||||||||
| $ | ||||||||
| Less: Inventory reserves | ( |
) | ||||||
| Total Inventory | $ | $ | ||||||
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
| September 30, 2023 |
December 31, 2022 |
|||||||
| (in thousands) | ||||||||
| Property and equipment, net: | ||||||||
| Land | $ | $ | ||||||
| Land improvements | |
|
||||||
| Buildings | |
|
||||||
| Office furniture and equipment | ||||||||
| Laboratory equipment | ||||||||
| Leasehold improvements | |
|||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation and amortization | ( |
) | ( |
) | ||||
| $ | $ | |||||||
On October 1, 2021,
the Company completed the acquisition of its approximately
On September 28, 2020,
the Company completed the purchase of its approximately
On December 23, 2020,
the Company completed the purchase of its approximately
During the quarter ended
September 30, 2023, property and equipment with a net book value of approximately $
14
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
The following table provides the gross carrying value of goodwill as follows:
| Amounts | ||||
| (in thousands) | ||||
| Balance at December 31, 2022 | $ | |||
| Acquired during the period (see Note 8) | ||||
| Balance at September 30, 2023 | $ | |||
The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
| September 30, 2023 |
December 31, 2022 |
|||||||
| (in thousands) | ||||||||
| Intangible assets subject to amortization | ||||||||
| Developed technology | $ | $ | ||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
| Intangible assets not subject to amortization | ||||||||
| Internet domain rights | $ | $ | ||||||
| Total intangible assets, net | $ | $ |
During the three months ended September 30,
2023, the Company recorded amortization of $
At September 30, 2023, the related amortization for each of the next five years ended December 31 is as follows (in thousands):
| Year Ending December 31, | |||||
| Remainder of 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 and beyond | |||||
| $ | |||||
NOTE 6 – 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,
2023, and December 31, 2022, the Company used Level 1 quoted prices in active markets to value cash equivalents of $
NOTE 7 – STOCKHOLDERS’ EQUITY
On May 9, 2023, the
Company filed a Certificate of Change with the Nevada Secretary of State, effective May 10, 2023. Pursuant to the Certificate of
Change, the Company effected a
On October 17, 2023,
the Company received a letter 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
15
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
The
Company was initially provided with a
NOTE 8 – TEMPORARY EQUITY
On October 26, 2022,
the Company closed on an offering (“the October offering”) with certain institutional investors (the “Investors”),
pursuant to which the Company issued and sold, in a private placement, shares of the Company’s Series A Convertible
Redeemable Preferred Stock, par value per share (the “Series A Preferred Stock”), and shares of the
Company’s Series B Convertible Redeemable Preferred Stock, par value per share (the “Series B Preferred Stock,”
and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of per share, representing
a
On December 13, 2022,
an amendment (the “December Amendment”) to the Company’s Articles of Incorporation, as amended, to increase the
Company’s authorized shares of common stock from to , as adjusted for the reverse split, was approved
at a special meeting of shareholders. The Series A Preferred Stock had the right to vote on such December Amendment on an as-converted
to common stock basis. The shares of the Series B Preferred Stock were automatically voted in a manner that “mirrored”
the proportions on which the shares of common stock (excluding any shares of common stock that were not voted) and Series A Preferred
Stock were voted to increase the Authorized Shares. The December Amendment required the approval of the majority of the votes associated
with the Company’s outstanding stock entitled to vote on the proposal. Because the Series B Preferred Stock were automatically
and without further action of the purchaser voted in a manner that “mirrored” the proportions on which the shares of
common stock (excluding any shares of common stock that were not voted) and Series A Preferred Stock were voted on the December
Amendment, abstentions by common stockholders did not have any effect on the votes cast by the holders of the Series B Preferred
Stock. The Certificates of Designation for the Preferred Stock provides that the
The holders of Preferred
Stock were entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of common stock.
The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of
common stock at a conversion price of $
The $
Since the Preferred
Stock had a redemption feature at the option of the holder, it was classified as temporary equity. The Series A Preferred Stock
and Series B Preferred Stock was recorded at redemption value of approximately $
| Series A Preferred Stock | Series B Preferred Stock | |||||||
| Gross Proceeds | $ | $ | ||||||
| Less: | ||||||||
| Preferred stock issuance costs | ( |
) | ( |
) | ||||
| Plus: | ||||||||
| Accretion of carrying value to redemption value | ||||||||
| Preferred stock subject to possible redemption | $ | $ | ||||||
During December 2022,
the Company received redemption notices for all outstanding shares of Preferred Stock. The Preferred Stock was redeemed during
December 2022 at
On June 24, 2022, the
Company closed on an offering (“the Offering”) with certain institutional investors (the “Investors”),
pursuant to which the Company issued and sold, in a private placement, shares of the Company’s Series A Convertible
Redeemable Preferred Stock, par value per share (the “Series A Preferred Stock”), and shares of the
Company’s Series B Convertible Redeemable Preferred Stock, par value per share (the “Series B Preferred Stock,”
and together with the Series A Preferred Stock, the “Preferred Stock”), at an offering price of per share, representing
a
16
On August 5, 2022, an
amendment (the “Amendment”) to the Company’s Articles of Incorporation, as amended, to increase the Company’s
authorized shares of common stock from to , as adjusted for the reverse split, was approved at a special meeting
of shareholders. The Series A Preferred Stock had the right to vote on such Amendment on an as-converted to common stock basis.
The shares of the Series B Preferred Stock were automatically voted in a manner that “mirrored” the proportions on
which the shares of common stock (excluding any shares of common stock that were not voted) and Series A Preferred Stock were voted
to increase the Authorized Shares. The Amendment required the approval of the majority of the votes associated with the Company’s
outstanding stock entitled to vote on the proposal. Because the Series B Preferred Stock were automatically and without further
action of the purchaser voted in a manner that “mirrored” the proportions on which the shares of common stock (excluding
any shares of common stock that were not voted) and Series A Preferred Stock were voted on the Amendment, abstentions by common
stockholders did not have any effect on the votes cast by the holders of the Series B Preferred Stock. The Certificates of Designation
for the Preferred Stock provides that the
The holders of Preferred
Stock were entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on shares of common stock.
The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of
common stock at a conversion price of $
The $
Since the Preferred Stock had a redemption feature at the option of the holder, it was classified as temporary equity. The Series A Preferred Stock and Series B Preferred Stock was recorded at redemption value of approximately million and million, respectively, as calculated in the following table (in thousands):
| Series A Preferred Stock | Series B Preferred Stock | |||||||
| Gross Proceeds | $ | $ | ||||||
| Less: | ||||||||
| Preferred stock issuance costs | ( |
) | ( |
) | ||||
| Plus: | ||||||||
| Accretion of carrying value to redemption value | ||||||||
| Preferred stock subject to possible redemption | $ | $ | ||||||
During August 2022,
the Company received redemption notices for all outstanding shares of Preferred Stock. The Preferred Stock was redeemed during
August 2022 at
NOTE 9 – REVENUES
Disaggregation of Net Revenues
The Company’s net product revenues are summarized below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Zembrace® Symtouch® | $ | $ | $ | $ | ||||||||||||
| Tosymra® | $ | $ | $ | |||||||||||||
| Total product revenues | $ | $ | $ | $ | ||||||||||||
Gross-to-Net Sales Accruals
We record gross-to-net sales accruals for chargebacks, rebates, sales and other discounts, and product returns, which are all customary to the pharmaceutical industry.
Our provision for gross-to-net allowances
was $
NOTE 10 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH
On June 30, 2023, the Company completed the acquisition of certain assets from Upsher-Smith Laboratories LLC ("USL") 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 million, including certain deferred payments and subject to customary adjustments (such transaction, the “USL Acquisition”).
On June 30, 2023, in
connection with the USL Acquisition, the Company and USL entered into a Transition Services Agreement (the “Transition Services
Agreement”), pursuant to which USL will provide certain transition services to the Company for base fees equal to $
The Company
has assumed certain obligations of Seller, including the payment of quarterly earn-out payments on annual net sales from the Business
in the U.S. as follows: for Tosymra,
17
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
In addition,
the Company has assumed the obligation to pay an additional
As
consideration for acquisition of the Business and certain product-related inventories, the Company paid approximately million in cash upfront. On the earlier of March
2024 and the completion of the transition services to be provided by USL, as described above, the Company agreed to pay an additional
deferred payment of $
| Preliminary purchase consideration | Amount | |||
| Closing cash consideration | $ | |||
| Inventory adjustment payment liability | ||||
| Deferred payment liability | ||||
| Purchase price to be allocated | $ | |||
The USL Acquisition was accounted for as a business combination using the acquisition method, in accordance with the provisions of ASC 805, Business Combinations and ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The tangible and intangible assets acquired were recorded at their estimated fair values on the acquisition date, and the difference between the fair value of these assets and the purchase price has been recorded as goodwill. The purchase price allocation is based upon preliminary valuations and estimates and assumptions which are subject to change. As the Company receives additional information about facts and circumstances that existed at the acquisition date, the fair values of the acquired inventory and intangible assets may be adjusted, with the offset recorded to goodwill. The acquisition-date fair value analyses will be finalized as soon as practicable, but in no event later than one year after the acquisition date.
The following table represents the preliminary allocation of the purchase price to the assets acquired by the Company in the USL Acquisition recognized in the Company’s consolidated balance sheets (in thousands):
| Preliminary purchase price allocation | Amount | |||
| Inventory | $ | |||
| Prepaid expenses and other | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Fair value of assets acquired | $ | |||
The acquired inventory consists of USL’s raw materials, semi-finished goods, and finished goods inventory as of the Closing date. The fair value was determined based on the estimated selling price of the inventory, less the estimated total costs to complete, disposal effort and holding costs.
The $.0 million of goodwill arising from the USL Acquisition represents expected synergies from combining operations, intangible assets that do not qualify for separate recognition, and other factors, of which all is expected to be deductible for tax purposes, subject to any limitations.
Intangible assets eligible for recognition separate from goodwill were those that satisfied either the contractual or legal criterion or the separability criterion in the accounting guidance. The identifiable intangible assets acquired and their estimated useful lives for amortization are as follows (in thousands):
| Fair Value | Useful Life (years) |
|||||||
| Developed technology - Tosymra | $ | |||||||
| Developed technology - Zembrace | ||||||||
| Total | $ | |||||||
The developed technology intangible assets related to Zembrace and Tosymra includes the value associated with the acquired patents, customer relationships, and trademarks and trade names associated with the technology. The developed technology intangible assets were valued as composite assets under the premise that each asset is reliant on one another to generate cash flow, is not considered separable from the technology, and are assumed to have similar useful lives. The composite intangible assets were valued using a multi-period excess earnings method and are being amortized over their estimated useful lives using the straight-line method of amortization. The key assumptions used in estimating the fair values of intangible assets include forecasted financial information, the weighted average cost of capital, customer retention rates, and certain other assumptions.
The fair values assigned to the assets acquired are based on reasonable assumptions and estimates that market participants would use. Actual results may differ from these estimates and assumptions.
Supplemental Pro Forma Information
The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three and nine months ended September 30, 2023 and 2022 as if the USL Acquisition had occurred as of January 1, 2022 and gives effect to transactions that are directly attributable to the acquisition. These amounts are based on financial information of the acquired business and are not necessarily indicative of what the Company’s operating results would have been had the acquisition taken place on the date presented, nor is it indicative of the Company’s future operating results.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Product Sales | $ | $ | $ | $ | ||||||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
18
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
The pro forma information for all periods presented include additional amortization expense related to the fair value of the acquired intangible assets as if such assets were acquired on January 1, 2022. The pro forma financial information for the three and nine months ended September 30, 2022 also reflects an increase in Cost of Sales related to the preliminary acquisition-date fair value adjustment to inventory. This adjustment is not reflected in the three and nine months ended September 30, 2023 as the acquired inventory is expected to be sold within one year from the acquisition date.
As described above, in connection with the USL Acquisition, the Company and USL entered into a Transition Services Agreement with the Seller related to providing ongoing services associated with the assets acquired, such as procuring and selling migraine therapy products, providing accounting and billing services and collecting accounts receivable and paying trade payables. The Seller collected and will continue to collect cash on behalf of Tonix for revenue generated by sales of the assets acquired from June 30, 2023 through the transition period and the Seller is obligated to transfer cash generated by such sales to the Buyer.
The
amount due to USL for reimbursement of services performed under the transition services agreement was $
NOTE 11 – ASSET PURCHASE AGREEMENT WITH HEALION
On
February 2, 2023, the Company entered into an asset purchase agreement (the “Healion Asset Purchase Agreement”) with Healion
Bio Inc., (“Healion”) pursuant to which the Company acquired all the pre-clinical infectious disease assets of Healion, including
its portfolio of next-generation antiviral technology assets. Healion’s drug portfolio includes a class of broad-spectrum small
molecule oral antiviral drug candidates with a novel host-directed mechanism of action, including TNX-3900, formerly known as HB-121.
As consideration for entering into the Healion Asset Purchase Agreement, the Company paid $
NOTE 12 – LICENSE AGREEMENT WITH CURIA
On December 12, 2022,
the Company entered into an exclusive license agreement with Curia for the development of three humanized murine mAbs for the treatment
or prophylaxis of SARS-CoV-2 infection. We believe that the licensing of these mAbs strengthens our pipeline of next-generation
therapeutics to treat COVID-19, which is caused by SARS-CoV-2. As consideration for entering into the License Agreement, we paid
a license fee of approximately $
NOTE 13 – LICENSE AGREEMENT WITH UNIVERSITY OF ALBERTA
On May 18, 2022, the Company 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, Tonix 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 September 30, 2023, other than the upfront fee, no milestone payments have been accrued or paid in relation to this agreement.
NOTE 14 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY
On February 13, 2023, Tonix exercised an option to obtain an exclusive license from Columbia for the development of a portfolio of both fully human and murine mAbs for the treatment or prophylaxis of SARS-CoV-2 infection, including our TNX-3600 and TNX-4100 product candidates, respectively. The licensed mAbs were developed as part of a research collaboration and option agreement between Tonix and Columbia.
19
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
NOTE 15 – SALE OF COMMON STOCK
July 2023 Financing
On July 27, 2023, the
Company sold shares of common stock; pre-funded warrants
to purchase up to shares of common stock, and accompanying common warrants to purchase up to shares of common
stock with an exercise price of $
The Company incurred offering expenses of approximately $
2022 Lincoln Park Transaction
On August 16, 2022, the Company
entered into an equity line of credit with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park
agreed to purchase up to of the Company’s common stock (subject to certain limitations) from time to time. The Company
filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued
to Lincoln Park under the 2022 Purchase Agreement. The Company issued shares of common stock to Lincoln Park as consideration
for its commitment to purchase shares of the Company’s common stock. The commitment shares were valued at $
During the three and nine
months ended September 30, 2023, the Company sold and million shares, respectively, of common stock under the equity line of credit
with Lincoln Park, for net proceeds of approximately $
During the nine months ended September 30, 2022, shares of common stock were sold under the equity line of credit.
20
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
Purchase Agreement with Lincoln Park
On December 3, 2021, the Company entered into a purchase agreement (the “Purchase Agreement with Lincoln Park”) and a registration rights agreement (the “Lincoln Park Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the terms of the Purchase Agreement with Lincoln Park, Lincoln Park agreed to purchase from the Company up to $ of the Company’s common stock (subject to certain limitations) from time to time during the term of the Purchase Agreement with Lincoln Park. Pursuant to the terms of the Lincoln Park Registration Rights Agreement, the Company filed with the SEC a registration statement to register for resale under the Securities Act the shares that have been or may be issued to Lincoln Park under the Purchase Agreement with Lincoln Park.
Pursuant to the terms
of the Purchase Agreement with Lincoln Park, at the time the Company signed the Purchase Agreement with Lincoln Park and the Lincoln
Park Registration Rights Agreement, the Company issued shares of common stock to Lincoln Park as consideration for its commitment
to purchase shares of our common stock under the Purchase Agreement with Lincoln Park. The commitment shares were valued at $
During the nine months
ended September 30, 2022, the Company sold million shares of common stock under the Purchase Agreement with Lincoln Park, for
net proceeds of approximately $
Under applicable rules
of the NASDAQ Global Market, the Company could not issue or sell more than
At-the-Market Offerings
On April 8, 2020, the Company entered into a sales agreement
with AGP pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $
During
the three and nine months ended September 30, 2023, the Company sold approximately and .0 million shares, respectively, of
common stock under the Sales Agreement, for net proceeds of approximately $
Stock Repurchases
During the first quarter of 2023, the Company has repurchased of its shares of common stock outstanding under the 2022 share repurchase program for up to $ million at prices ranging from $ to $ per share for a gross aggregate cost of approximately $ million. In addition, the Company incurred expenses of $ million.
In January 2023, the Board of Directors approved a new 2023 share repurchase program pursuant to which the Company may repurchase up to an additional $ 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. During the first quarter of 2023, the Company has repurchased of our shares of common stock outstanding under the new 2023 share repurchase program at $ per share for a gross aggregate cost of $ million. No additional repurchases have occurred since the first quarter of 2023.
The timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and other factors and the New Share Repurchase Program may be discontinued or suspended at any time. Repurchases will be made in accordance with the rules and regulations promulgated by the Securities and Exchange Commission and certain other legal requirements to which the Company may be subject. Repurchases may be made, in part, under a Rule 10b5-1 plan, which allows stock repurchases when the Company might otherwise be precluded from doing so.
On May 1, 2020, the Company’s 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, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights (“SARs”), (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up to 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 (%) 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 % of fair value of the common stock at the date of the grant for a 10% or more shareholder and % 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 . As of September 30, 2023, options were available for future grants under the Amended and Restated 2020 Plan.
21
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
General
| Shares | Weighted- Average |
Weighted- Average Term |
Aggregate Intrinsic Value |
|||||||||||||
| Outstanding at December 31, 2022 | $ | $ | — | |||||||||||||
| Grants | ||||||||||||||||
| Exercised | — | — | ||||||||||||||
| Forfeitures or expirations | ( |
) | ||||||||||||||
| Outstanding at September 30, 2023 | $ | $ | — | |||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
The weighted average fair value of options granted during the three and nine months ended September 2023 was $ per share and $ per share, respectively. The weighted average fair value of options granted during the three and nine months ended September 2022 was $ per share and $ per share, respectively.
The Company measures 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. of most stock options granted pursuant to the Plans vest 12 months from the date of grant and each month thereafter for 24 months and expire from the date of grant. In addition, the Company issues options to directors which vest over a 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 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.
| Nine Months Ended September 30, 2023 |
Nine Months Ended September 30, 2022 |
|||||||
| Risk-free interest rate | % to | % | % to | % | ||||
| Expected term of option | to years | to years | ||||||
| Expected stock price volatility | % - | % | % - | % | ||||
| Expected dividend yield | ||||||||
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.
Stock-based compensation expense relating to options granted of $ million, of which $ million and $ million, related to General and Administration and Research and Development, respectively was recognized for the quarter ended September 30, 2023. Stock-based compensation expense relating to options granted of $ million, of which $.0 million and $ million, related to General and Administration and Research and Development, respectively was recognized for the quarter ended September 30, 2022.
Stock-based compensation expense relating to options granted of $ million, of which $.0 million and $ million, related to General and Administration and Research and Development, respectively was recognized for the nine-month period ended September 30, 2023. Stock-based compensation expense relating to options granted of $ million, of which $ million and $ million, related to General and Administration and Research and Development, respectively was recognized for the nine-month period ended September 30, 2022.
As of September 30, 2023, the Company had approximately $ 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 years.
Employee Stock Purchase Plans
On May 6, 2022, the Company’s 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 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 percent of the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period for the purchase of stock under the 2023 ESPP, subject to the statutory limit under the Code. As of September 30, 2023, shares were available for future sales under the 2023 ESPP.
22
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
The
ESPP Plans are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the
three months ended September 30, 2023 and 2022,
and ,
respectively, was expensed. For the nine months ended September 30, 2023 and 2022,
and ,
respectively were expensed. In January 2022,
shares that were purchased as of December 31, 2021, under the 2020 ESPP, were issued. Accordingly, during the first quarter of 2022,
approximately $
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 $
NOTE 17 – STOCK WARRANTS
The following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at September 30, 2023:
| Exercise | Number | Expiration | ||||||
| Price | Outstanding | Date | ||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
| $ | ||||||||
In connection with the
July 2023 Financing, the Company issued prefunded warrants with an exercise price of $
No warrants were exercised during either of the nine months ended September 30, 2023, and 2022.
NOTE 18 – LEASES
The Company has various operating lease agreements, which are primarily for office space. These agreements frequently include one or more renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At September 30, 2023, the Company has right-of-use assets of $ million and a total lease liability for operating leases of $ million of which $ million is included in long-term lease liabilities and $ million is included in current lease liabilities.
At September 30, 2023, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in thousands):
| Year Ending December 31, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 and beyond | |||||
| Included interest | ( |
) | |||
| $ |
During the nine months
ended September 30, 2023, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing
an additional operating lease liability of approximately $
During the nine months
ended September 30, 2022, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing
an additional operating lease liability of approximately $
Other information related to leases is as follows:
Operating lease expense
was $
Operating lease expense
was $
Other information related to leases is as follows:
| Cash paid for amounts included in the measurement of lease liabilities: | Nine
Months Ended September 30, 2023 |
Nine
Months Ended September 30, 2022 |
||||||
| Operating cash flow from operating leases (in thousands) | $ | $ | ||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
23
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
NOTE 19 – COMMITMENTS
Contractual agreements
The Company has entered
into contracts with various contract research organizations with outstanding commitments aggregating approximately $
Defined contribution plan
The Company has a qualified
defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Code, whereby all eligible employees
may participate. Participants may elect to defer a percentage of their annual pretax compensation to the 401(k) Plan, subject
to defined limitations. The Company is required to make contributions to the 401(k) Plan equal to
NOTE 20 – SUBSEQUENT EVENTS
On
September 28, 2023, the Company sold
shares of common stock; pre-funded warrants to purchase up to
shares of common stock, and accompanying Series A warrants to purchase up to
shares of common stock with an exercise price of $
The Company incurred offering expenses of approximately $
On October 17, 2023, the Company received a letter from the Listing Qualifications staff of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, the Company no longer met the requirement to maintain a minimum bid price of per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).
In
accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been provided a period of
24
ITEM 2. 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” R