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 | ||
| The |
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 12, 2024, 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)
(unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| 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 | ||||||||
| Term loan payable, short term | ||||||||
| Lease liability, short term | ||||||||
| Total current liabilities | ||||||||
| Term loan payable, long term | ||||||||
| Series C warrant liabilities | ||||||||
| Series D warrant liabilities | ||||||||
| Lease liability, long term | ||||||||
| Total liabilities | ||||||||
| Commitments (See Note 18) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value; shares authorized, shares designated as of both September 30, 2024, and December 31, 2023; shares issued and outstanding - as of both September 30, 2024 and December 31, 2023 | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively and shares to be issued as of December 31, 2023 | ||||||||
| 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, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUE: | ||||||||||||||||
| Product revenue, net | $ | $ | $ | $ | ||||||||||||
| COSTS AND EXPENSES: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Asset impairment charges | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Grant income | ||||||||||||||||
| Gain on change in fair value of warrant liabilities | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| 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, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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
(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, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Issuance of common stock upon exercise of prefunded common warrants | ( |
) | ||||||||||||||||||||||
| Fair value of warrants reclassified from liabilities to equity | — | |||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2024 | ( |
) | ( |
) | ||||||||||||||||||||
| Issuance
of common stock, net of transactional expenses of $ |
||||||||||||||||||||||||
| Issuance of common stock upon exercise of prefunded common warrants | ( |
) | ||||||||||||||||||||||
| Fair value of warrants reclassified from equity to liabilities | — | ( |
) | ( |
) | |||||||||||||||||||
| Fair value of warrants reclassified from liabilities to equity | — | |||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, June 30, 2024 | ( |
) | ( |
) | ||||||||||||||||||||
| Issuance
of common stock, net of transactional expenses of $ |
||||||||||||||||||||||||
| Issuance of common stock upon exercise of prefunded common warrants | ( |
) | ||||||||||||||||||||||
| Issuance
of common stock under the At-the-Market agreement, net of transactional expenses of $ |
||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See the accompanying notes to the condensed consolidated financial statements
6
TONIX PHARMACEUTICALS HOLDING CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(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, including transactional expenses of $ |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
| Issuance of common stock under 2022 Purchase agreement with Lincoln Park | ||||||||||||||||||||||||
| Issuance
of common stock net of transactional expenses of $ |
||||||||||||||||||||||||
| Employee stock purchase plan | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, March 31, 2023 | ( |
) | ( |
) | ||||||||||||||||||||
| Issuance
of common stock net of transactional expenses of $ |
||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency transaction loss | — | ( |
) | ( |
) | |||||||||||||||||||
| 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 loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Net loss | — | ( |
) | ( |
) | |||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
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, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Asset impairment charges | ||||||||
| Gain on disposal of property and equipment | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Inventory write-off | ||||||||
| Amortization of debt discount | ||||||||
| Stock-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses and other | ||||||||
| Accounts payable | ||||||||
| 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: | ||||||||
| Deferred payment related to purchase a business | ( | ) | ||||||
| Repurchase of common stock | ( | ) | ||||||
| Proceeds from ESPP | ||||||||
| Payment of term loan | ( | ) | ||||||
| Proceeds, net of $ | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of currency rate change on cash | ( | ) | ( | ) | ||||
| Net increase (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: | ||||||||
| Interest expense paid | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| At-the-market agreement receivable | $ | |||||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements
8
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
NOTE 1 – BUSINESS
Tonix Pharmaceuticals Holding Corp. (“Tonix” or the “Company”), through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a fully integrated biopharmaceutical company focused on transforming therapies for pain management and vaccines for public health challenges.
Tonix’s priority is
to advance its TNX-102 SL product candidate for the management of fibromyalgia, for which a New Drug Application (“NDA”)
was submitted to the U.S. Food and Drug Administration (“FDA”) based on two statistically significant Phase 3 studies. The
FDA granted Fast Track designation to TNX-102 SL for the management of fibromyalgia in the third quarter 2024. The Company expects an
FDA decision on the acceptance of the NDA for review and PDUFA date in December and if accepted, a decision on NDA approval in 2025. Fibromyalgia is
a common chronic pain condition that affects mostly women. Fibromyalgia is now recognized as the prototypic nociplastic pain syndrome.
TNX-102 SL is a non-opioid, centrally acting analgesic developed for long-term use in fibromyalgia. If approved, TNX-102 SL would be
the first new drug therapy for fibromyalgia in more than 15 years. TNX-102 SL is also being developed to treat acute stress reaction
and acute stress disorder under a Physician-Initiated Investigational New Drug application (“IND”) at the University of North
Carolina in the OASIS study funded by the U.S. Department of Defense (“DoD”). We expect to initiate enrollment in the OASIS
study in the fourth quarter. Tonix’s CNS portfolio includes TNX-1300 (cocaine esterase), a biologic drug candidate in Phase 2 development
designed to treat cocaine intoxication that has FDA Breakthrough Therapy designation, and its development is supported by a grant from
the U.S. National Institute of Drug Abuse. Tonix’s immunology development portfolio includes TNX-1500, which is an
Fc-modified humanized monoclonal antibody targeting CD40-ligand (CD40L or CD154) in Phase 1 development for the prevention of allograft
rejection and for the treatment of autoimmune diseases. TNX-1700 is a fusion protein of TFF2 and albumin and is in the pre-IND stage
of development to treat gastric and pancreatic cancer. Tonix also has pre-clinical product candidates in development in the areas of
rare disease, including TNX-2900 for Prader-Willi syndrome, and infectious disease, including TNX-801, a potential vaccine to prevent
mpox and smallpox. Tonix recently announced a contract with the U.S. DoD’s Defense Threat Reduction Agency (“DTRA”)
for up to $
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 Institute LLC, Tonix R&D Center LLC, Tonix Pharma Holdings Limited and Tonix Pharma Limited (collectively, 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,
2024, the Company had working capital of approximately $
The
Company believes that its cash resources at September 30, 2024 and the net proceeds of $
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 or all of its research and development activities or other operations, and potentially delay product development in an effort to maintain sufficient funds to continue operations. If any of these events occurs, the Company’s ability to achieve development and commercialization goals will be adversely affected and the Company may be forced to cease operations. Moreover, the Company may default under the terms of its existing indebtedness. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
9
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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, 2023, contained herein has been derived from audited financial statements.
Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024. 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, 2023, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2024.
Reverse Stock Split
On
June 10, 2024, 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.
10
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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, but are not limited to, impairments, 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 (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing
performance. The Company considers its chief executive officer to be the Company’s CODM. The CODM manages its operations
and allocates resources based on the Company’s consolidated results and therefore operates as
The
Company has two products that each accounted for more than
As
of September 30, 2024, 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, 2024 and September 30, 2023, cash equivalents, which consisted
of money market funds, amounted to $
11
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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, 2024 | September 30, 2023 | |||||||
| (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 cash discounts, chargebacks and customer rebates. 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.
As of September 30, 2024, the Company did not have an allowance for credit losses, as the Company’s exposure to credit losses is de minimis. An allowance for credit losses 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 variety of customers using our products, as well as their dispersion across different geographic areas.
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. Acquired
inventory was valued at estimated selling price less a reasonable margin. 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. During the three and nine months ended September 30, 2024, the Company recorded write-downs
related to Tosymra and Zembrace finished goods inventory of approximately $
12
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
The Company did not have inventory on hand prior to the acquisition of Zembrace and Tosymra on June 30, 2023.
Property and equipment
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization 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, LLC (“Upsher Smith”) consummated on June 30, 2023 (See Note 6).
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 and nine months ended September 30, 2024, was $
Impairment testing of long-lived assets
The Company evaluates long-lived assets for impairment, including property and equipment, finite-lived intangibles assets and operating lease right-to-use assets whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
During
the second quarter of 2024, the Company identified certain triggering events related to and the decommissioning of the
ADC. The Company determined that the carrying value of the ADC was not recoverable and that the carrying value exceeded its fair
value. As such, the Company recorded a non-cash impairment charge of $
13
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
Additionally,
due to a sustained decline in revenues and continued delays in building out the sales team for its commercialized products, the
Company also tested its commercialized products asset group for recoverability during the second quarter of 2024. The Company
determined that the carrying value was not recoverable and therefore estimated the fair value of the asset group using a discounted
cash flow analysis. The Company recorded a non-cash impairment charge for the amount of $
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. The Company previously recognized goodwill in connection with the
USL Acquisition consummated on June 30, 2023 (See Note 6). The Company completed the required annual impairment test for goodwill
during the second quarter of 2024, which resulted in full non-cash impairment of the Company’s $
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 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.
Deferred financing costs
Deferred financing costs represent the cost of obtaining financing arrangements and are amortized over the term of the related debt agreement using the effective interest method. Deferred financing costs related to term debt arrangements are reflected as a direct reduction of the related debt liability on the consolidated balance sheet. Amortization of deferred financing costs are included in interest expense on the consolidated statements of operations.
Original issue discount
Certain term debt issued by the Company provides the debt holder with an original issue discount. Original issue discounts are reflected as a direct reduction of the related debt liability on the consolidated balance sheets and are amortized over the term of the related debt agreement using the effective interest method. Amortization of original issue discounts are included in interest expense on the consolidated statements of operations.
14
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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
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. |
15
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
| ● | 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.
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.
16
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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 and, in certain arrangements. U.S. GAAP does not have specific accounting standards covering government grants to business entities. The Company applies International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance by analogy when accounting for government grants. Under IAS 20, government grants are initially recognized when there is reasonable assurance the conditions of the grant will be met and the grant will be received. After initial recognition, government grants received are recognized in earnings in the same period the underlying costs for which the grant is intended to compensate are incurred. The Company classifies government grants received under these arrangements as either a reduction to the related research and development expense or as grant income in the consolidated statements of operations, depending on the fee structure of the arrangement. The Company also applies the disclosure requirements of ASC 832, Government Assistance.
In
August 2022, the Company 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 nine months ended September 30, 2024, we received $
In
June 2024, the Company was awarded a prototype Other Transaction Agreement from the Defense Threat Reduction Agency (“DTRA”),
an agency within the U.S. Department of Defense, to fund the Company’s TNX-4200 program for the development of a small molecule
broad-spectrum antiviral for the prevention or treatment of viral infections to improve the medical readiness of military personnel
in biological threat environments. The DTRA grant provides for payments totaling up to $
17
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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 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.
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 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, 2024, 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.
Derivative Instruments and Warrant Liabilities
The Company evaluates all of its financial instruments, including issued warrants to purchase common stock under ASC 815 – Derivatives and Hedging, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives (See Note 14). For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The Company uses the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates, which is adjusted for instrument-specific terms as applicable.
From time to time, certain equity-linked instruments may be classified as derivative liabilities due to the variable exercise price of the shares to fully settle the equity-linked financial instruments in shares. In such case, the Company has adopted a sequencing approach under ASC 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity to determine the classification of its contracts at issuance and at each subsequent reporting date.
18
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
In the event that reclassification of contracts between equity and assets or liabilities is necessary, the Company first allocates remaining authorized shares to equity on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest issuance date receiving the first allocation of shares. In the event of identical issuance dates, shares are then allocated to equity beginning with instruments with the latest maturity date first.
The classification of derivative instruments is reassessed at each reporting date. If the classification changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be reclassified.
The computation of basic and diluted loss per share for the quarters ended September 30, 2024 and 2023 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. Prefunded warrants are assumed exercised on date of issuance and are included in the basic earnings per share (“EPS”) calculation.
All warrants (See Note 16) 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 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, 2024, and 2023, as results of operations were a loss for the periods.
| 2024 | 2023 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Totals | ||||||||
Recent Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting--Improvements to Reportable Segment Disclosures, which requires incremental disclosures about a public entity’s reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. The guidance will first be effective in our annual disclosures for the year ending December 31, 2024, and will be adopted retrospectively unless impracticable. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-07 on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disaggregated information about our effective tax rate reconciliation as well as information on income taxes paid. The guidance will first be effective in our annual disclosures for the year ending December 31, 2025, and should be applied on a prospective basis with the option to apply retrospectively. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2023-09 on our disclosures.
19
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
In March 2024, the SEC adopted new rules relating to the disclosure of a range of climate-change-related physical and transition risks, data, and opportunities. The adopted rule contains several new disclosure obligations, including, (i) disclosure on how the board of directors and management oversee climate-related risks and certain climate-related governance items, (ii) disclosure of information related to a registrant’s climate-related targets, goals, and/or transition plans, and (iii) disclosure on whether and how climate-related events and transition activities impact line items above a threshold amount on a registrant’s consolidated financial statements, including the impact of the financial estimates and the assumptions used. This new rule will first be effective in the Company’s disclosures for the year ending December 31, 2027. The Company is in the process of assessing the impact on our consolidated financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, to improve transparency in financial reporting by requiring entities to present more detailed information about the nature of expenses included within the Income Statement. The guidance will first be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is in the process of assessing the impact of ASU 2024-03 on our disclosures.
NOTE 3 – INVENTORY
The components of inventory consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Raw Materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished Goods | ||||||||
| Total Inventory | $ | $ | ||||||
During the nine months ended September 30, 2024, the Company recorded write-downs related to Tosymra and Zembrace finished goods inventory of approximately $ million based on an assessment of inventory on hand and projected sales prior to the respective expiration dates.
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Contract-related | $ | $ | ||||||
| Government grants | ||||||||
| At-the-market receivable | ||||||||
| Non-trade receivables | ||||||||
| Debt interest and fees | ||||||||
| Inventory | ||||||||
| Insurance | ||||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 5 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Property and equipment, net: | ||||||||
| Land | $ | $ | ||||||
| Land improvements | ||||||||
| Buildings | ||||||||
| Office furniture and equipment | ||||||||
| Laboratory equipment | ||||||||
| Leasehold improvements | ||||||||
| Property Plant And Equipment Gross | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property Plant And Equipment Net | $ | $ | ||||||
20
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
During
the second quarter of 2024, primarily as a result of the Company’s decision to decommission its ADC facility in Dartmouth,
Massachusetts, the Company recognized a non-cash impairment charge of $
On
October 1, 2021, the Company completed the acquisition of its approximately
On
December 23, 2020, the Company completed the purchase of its approximately
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
The following table provides the gross carrying value of goodwill as follows:
| Amounts | ||||
| (in thousands) | ||||
| Balance at December 31, 2023 | $ | |||
| Impairment of goodwill | ( |
) | ||
| Balance at September 30, 2024 | $ | |||
The
Company completed its annual impairment test for goodwill during the second quarter of 2024, which resulted in full impairment
of the Company’s $
The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
| September 30, 2024 | December 31, 2023 | |||||||
| (in thousands) | ||||||||
| Intangible assets subject to amortization | ||||||||
| Developed technology | $ | $ | ||||||
| Less: Impairment charge | ||||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
| Intangible assets not subject to amortization | ||||||||
| Internet domain rights | $ | $ | ||||||
| Total intangible assets, net | $ | $ | ||||||
21
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
During
the three and nine months ended September 30, 2024, the Company recorded amortization of $
As
a result of certain triggering events identified impacting the Company’s commercialized products asset group during the
second quarter of 2024, the Company tested the asset group for impairment as of June 30, 2024, resulting in a full impairment
of its Zembrace and Tosymra developed technology intangible assets, of $
NOTE 7 – 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, 2024, and December 31, 2023, the Company used Level 1 quoted prices in active markets to value cash equivalents which were de minimis for both periods presented. The Company did not have any Level 2 or Level 3 assets or liabilities as of September 30, 2024. As of December 31, 2023, Level 3 liabilities included a portion of the Company’s outstanding Series D Warrants and all of the Company’s outstanding Series C Warrants issued in December 2023, which did not meet the criteria for equity classification due to insufficient authorized shares to settle the instruments and were therefore accounted for as liabilities at fair value. After the Company received stockholder approval to increase the number of authorized shares on January 25, 2024, the liability classified Series D Warrants and the Series C Warrants met all requirements for equity classification and, as a result, the Company reclassified them to equity as of January 25, 2024.
The
Company used the Black-Scholes option pricing model to estimate the fair value of the Series D Warrants and the Series C Warrants
using significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. For periods prior
to the receipt of stockholder approval, the fair value was then adjusted by applying a discount for lack of marketability (“DLOM”)
based on the expected timing of receipt of stockholder approval to increase the number of authorized shares and to allow the Warrants
to become exercisable in accordance with Nasdaq Listing Rule 5635. Additionally, between April 1, 2024 and May 22, 2024,
Level 3 liabilities included a portion of the Company’s outstanding August 2023 Warrants, Series A Warrants, Series B Warrants,
Series C Warrants, and Series D Warrants (collectively, the “Existing Warrants”), as a result of certain Warrant Amendments
entered into upon the closing of an equity financing on April 1, 2024, which provided for adjustments to the exercise prices of
the Existing Warrants, contingent on approval by the Company’s stockholders of a proposal to allow the Existing Warrants
to become exercisable in accordance with Nasdaq Listing Rule 5635. The Company determined that the exercise price adjustment provision
that is contingent on stockholder approval precluded the Existing Warrants from being indexed to the Company’s own stock,
and therefore were reclassified to liabilities at post-modification fair value on April 1, 2024. After the Company received stockholder
approval on May 22, 2024, thereby reducing the exercise prices of each of the Existing Warrants to $
The following table summarizes the range of significant assumptions used in determining the fair value of liability-classified warrants as of December 31, 2023 and on the respective reclassification dates for the nine months ended September 30, 2024:
| Nine months ended | As of | |||||
| September 30, 2024 | December 31, 2023 | |||||
| Common stock price | $ | - | $ | |||
| Risk-free rate | ||||||
| Expected term (in years) | ||||||
| Expected volatility | ||||||
| Discount for lack of marketability | N/A | |||||
22
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
A reconciliation of the beginning and ending balances for the liability-classified warrants measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows for the nine months ended September 30, 2024:
| Warrant liabilities | ||||
| Balance at December 31, 2023 | $ | |||
| Fair value - mark to market adjustment | ( |
) | ||
| Warrants reclassified from liabilities to equity | ( |
) | ||
| Balance at March 31, 2024 | $ | |||
| Warrants reclassified from equity to liabilities | ||||
| Fair value - mark to market adjustment | ||||
| Warrants reclassified from liabilities to equity | ( |
) | ||
| Balance at June 30, 2024 | $ | |||
| Warrants reclassified from equity to liabilities | ||||
| Fair value - mark to market adjustment | ||||
| Warrants reclassified from liabilities to equity | ||||
| Balance at September 30, 2024 | $ | |||
There were no liability-classified warrants measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three or nine months ended September 30, 2023. Changes in the fair value of the liability-classified warrants are recognized as a separate component of income and expense in the consolidated statement of operations.
NOTE 8 – DEBT FINANCING
Long-term debt consists of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Term Loan | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Total long-term debt | ||||||||
| Less: unamortized debt discount and deferred financing costs | ( | ) | ( | ) | ||||
| Total long-term debt, net | $ | $ | ||||||
On
December 8, 2023, the Company entered into a Loan and Guaranty Agreement (the “Loan Agreement”) by and among the
Company, Krele LLC, Tonix Pharmaceuticals, Inc., Jenner and Tonix R&D Center (collectively, the “Loan
Parties”), with JGB Capital, LP, JGB Partners, LP, JGB (Cayman) Port Ellen Ltd., and any other lender from time to time
party hereto (collectively, the “Lenders”), and JGB Collateral LLC, as administrative agent and collateral agent
for the Lenders (in such capacity, “JGB Agent”) for a
23
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
Borrowings
under the Term Loan bear interest at a fluctuating rate equal to the greater of (i) the prime rate as defined in the Loan Agreement
plus
Commencing
on
The Loan Agreement provides for voluntary prepayments of the Term Loan, in whole or in part, subject to a prepayment premium. The Loan Agreement contains customary affirmative and negative covenants by the Company, which among other things, will require the Borrowers to provide certain financial reports to the lenders, to maintain a deposit account to fund interest payments, and limit the ability of the Company to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, sell assets, engage in certain transactions, and effect a consolidation or merger. The obligations of the Company under the Loan Agreement may be accelerated upon customary events of default, including non-payment of principal, interest, fees and other amounts, covenant default, insolvency, material judgements, inaccuracy of representations and warranties, invalidity of guarantees. The Term Loan is secured by first priority security interests in the Company’s R&D Center in Frederick, Maryland, the Advanced Development Center in North Dartmouth, Massachusetts, and substantially all of the relevant deposit accounts.
Annual future principal payments due on the Term Loan as of September 30, 2024 are as follows (in thousands):
| Fiscal years ending | |||||
| Remainder of 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| $ | |||||
24
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
NOTE 9 – STOCKHOLDERS’ EQUITY
On
June 10, 2024, the Company effected a
On January 25, 2024, the Company filed a Certificate of Amendment to its Articles of Incorporation, as amended, with the Secretary of State of the State of Nevada to increase the number of authorized shares of the Company’s common stock from to shares (the “Charter Amendment”). The Charter Amendment was approved by the Company’s shareholders at a special meeting of shareholders held on January 25, 2024.
On August 9, 2024, the Company received notice from the Listing Qualifications
staff of The Nasdaq Stock Market LLC (“Nasdaq”) that the Company no longer met the requirement to maintain a minimum bid price
of $ per share, as set forth in Nasdaq Listing Rule 55450(a)(1) (the “Minimum
Bid Price Requirement”). The Company was initially provided with a
NOTE 10 – REVENUES
Disaggregation of Net Revenues
The Company’s net product revenues are summarized below:
Three months ended September 30, |
||||||||
| 2024 | 2023 | |||||||
| Zembrace Symtouch | $ | $ | ||||||
| Tosymra | ||||||||
| Total product revenues | $ | $ | ||||||
Nine months ended September 30, |
||||||||
| 2024 | 2023 | |||||||
| Zembrace Symtouch | $ | $ | ||||||
| Tosymra | ||||||||
| Total product revenues | $ | $ | ||||||
25
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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 11 – ASSET PURCHASE AGREEMENT WITH UPSHER-SMITH
On June 30, 2023, the Company completed the acquisition of certain assets from Upsher Smith 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 Upsher Smith entered into a Transition Services Agreement
(the “Transition Services Agreement”), pursuant to which Upsher Smith provided certain transition services to the
Company for base fees equal to $
The
Company has assumed certain obligations of Upsher Smith, including the payment of quarterly royalty payments on annual net sales from
the Business in the U.S. as follows: for Tosymra,
For
Zembrace, royalty payments on annual net sales in the U.S. are
26
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (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 $
The following table summarizes the components of the purchase consideration (in thousands):
| 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 following table represents the 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):
| Purchase price allocation | Amount | |||
| Inventory | $ | |||
| Prepaid expenses and other | ||||
| Intangible assets, net | ||||
| Goodwill | ||||
| Fair value of assets acquired | $ | |||
The acquired inventory consists of Upsher Smith’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.
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 | $ | |||||||
27
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023 (UNAUDITED)
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.
Due to a sustained decline in revenues and continued delays in building
out the sales team for its commercialized products, the Company also tested its commercialized products asset group for recoverability
during the second quarter of 2024. The Company determined that the carrying value was not recoverable and therefore estimated the fair
value of the asset group using a discounted cash flow analysis. The Company recorded a non-cash impairment charge in the amount of $