ITEM
1. FINANCIAL STATEMENTS
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
Thousands, Except Par Value and Share Amounts)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
12,150
|
|
|
$
|
25,034
|
|
Prepaid
expenses and other
|
|
|
2,009
|
|
|
|
1,022
|
|
Total
current assets
|
|
|
14,159
|
|
|
|
26,056
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
36
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Operating
lease right-of-use assets
|
|
|
580
|
|
|
|
—
|
|
Security
deposit
|
|
|
13
|
|
|
|
|
|
Restricted
cash
|
|
|
100
|
|
|
|
100
|
|
Intangible
asset
|
|
|
120
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
15,008
|
|
|
$
|
26,319
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,044
|
|
|
$
|
1,404
|
|
Accrued
expenses and other current liabilities
|
|
|
562
|
|
|
|
1,251
|
|
Operating
lease liabilities, current
|
|
|
441
|
|
|
|
—
|
|
Total
current liabilities
|
|
|
2,047
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
Operating
lease liabilities, noncurrent
|
|
|
139
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
2,186
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
Commitments
(See Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred stock, $0.001 par value; 11,984 shares designated; 0 and 9,856 shares issued and outstanding as of
June 30, 2019 and December 31, 2018, respectively
|
|
|
—
|
|
|
|
—
|
|
Common
stock, $0.001 par value; 150,000,000 shares authorized; 6,338,320 and 3,251,970 shares issued and outstanding as of June 30,
2019 and December 31, 2018, respectively, and 23,792 and 1,758 shares to be issued as of June 30, 2019 and December 31, 2018,
respectively
|
|
|
6
|
|
|
|
3
|
|
Additional
paid in capital
|
|
|
213,380
|
|
|
|
212,154
|
|
Accumulated
deficit
|
|
|
(200,525
|
)
|
|
|
(188,452
|
)
|
Accumulated
other comprehensive loss
|
|
|
(39
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
12,822
|
|
|
|
23,664
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
15,008
|
|
|
$
|
26,319
|
|
See
the accompanying notes to the condensed consolidated financial statements
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
Thousands, Except Share and Per Share Amounts)
(unaudited)
|
|
Three
months ended June 30,
|
|
|
Six months
ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
3,554
|
|
|
$
|
4,067
|
|
|
$
|
7,450
|
|
|
$
|
9,237
|
|
General
and administrative
|
|
|
2,352
|
|
|
|
2,076
|
|
|
|
4,753
|
|
|
|
3,894
|
|
|
|
|
5,906
|
|
|
|
6,143
|
|
|
|
12,203
|
|
|
|
13,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,906
|
)
|
|
|
(6,143
|
)
|
|
|
(12,203
|
)
|
|
|
(13,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
66
|
|
|
|
56
|
|
|
|
130
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,840
|
)
|
|
$
|
(6,087
|
)
|
|
$
|
(12,073
|
)
|
|
$
|
(13,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share, basic and diluted
|
|
$
|
(0.95
|
)
|
|
$
|
(7.23
|
)
|
|
$
|
(2.19
|
)
|
|
$
|
(15.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
6,167,012
|
|
|
|
842,041
|
|
|
|
5,511,249
|
|
|
|
815,120
|
|
See
the accompanying notes to the condensed consolidated financial statements
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In
Thousands)
(unaudited)
|
|
Three
months ended June 30,
|
|
|
Six months
ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net loss
|
|
$
|
(5,840
|
)
|
|
$
|
(6,087
|
)
|
|
$
|
(12,073
|
)
|
|
$
|
(13,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
(loss) gain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation (loss) gain
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
2
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(5,840
|
)
|
|
$
|
(6,108
|
)
|
|
$
|
(12,071
|
)
|
|
$
|
(13,044
|
)
|
See
the accompanying notes to the condensed consolidated financial statements
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
SIX
MONTHS ENDED JUNE 30, 2019
(In
Thousands, Except Share and Per Share Amounts)
(unaudited)
|
|
Series
A Convertible
Preferred stock
|
|
|
Common
stock
|
|
|
Additional
Paid in
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Total
|
|
Balance,
December 31, 2018
|
|
|
9,856
|
|
|
$
|
—
|
|
|
|
3,251,970
|
|
|
$
|
3
|
|
|
$
|
212,154
|
|
|
$
|
(41
|
)
|
|
$
|
(188,452
|
)
|
|
$
|
23,664
|
|
Issuance
of common stock upon conversion of Series A Convertible preferred stock
|
|
|
(9,856
|
)
|
|
|
—
|
|
|
|
2,816,000
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock in exchange for exercise of warrants in March 2019 ($3.50 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
—
|
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Employee
stock purchase plan
|
|
|
—
|
|
|
|
—
|
|
|
|
1,758
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
|
|
—
|
|
|
|
—
|
|
|
|
305
|
|
Foreign
currency transaction gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,233
|
)
|
|
|
(6,233
|
)
|
Balance,
March 31, 2019
|
|
|
—
|
|
|
|
—
|
|
|
|
6,089,728
|
|
|
|
6
|
|
|
|
212,529
|
|
|
|
(39
|
)
|
|
|
(194,685
|
)
|
|
|
17,811
|
|
Issuance
of common stock under 2018 Purchase Agreement
|
|
|
—
|
|
|
|
—
|
|
|
|
227,540
|
|
|
|
—
|
|
|
|
387
|
|
|
|
—
|
|
|
|
—
|
|
|
|
387
|
|
Issuance
of common stock under At-the-market offering, net of transactional expenses of $1
|
|
|
—
|
|
|
|
—
|
|
|
|
21,052
|
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
431
|
|
|
|
—
|
|
|
|
—
|
|
|
|
431
|
|
Foreign
currency transaction loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,840
|
)
|
|
|
(5,840
|
)
|
Balance,
June 30, 2019
|
|
|
—
|
|
|
$
|
—
|
|
|
|
6,338,320
|
|
|
$
|
6
|
|
|
$
|
213,380
|
|
|
$
|
(39
|
)
|
|
$
|
(200,525
|
)
|
|
$
|
12,822
|
|
See
the accompanying notes to the condensed consolidated financial statements
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
SIX
MONTHS ENDED JUNE 30, 2018
(In
Thousands, Except Share and Per Share Amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Series
A Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
Common
stock
|
|
|
Paid
in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Total
|
|
Balance,
December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
785,874
|
|
|
$
|
1
|
|
|
$
|
186,990
|
|
|
$
|
(12
|
)
|
|
$
|
(162,363
|
)
|
|
$
|
24,616
|
|
Issuance
of common stock related to restricted stock units
|
|
|
—
|
|
|
|
—
|
|
|
|
75
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance
of common stock in March ($32.10 per share), net of transaction expenses of $45
|
|
|
—
|
|
|
|
—
|
|
|
|
18,000
|
|
|
|
—
|
|
|
|
532
|
|
|
|
—
|
|
|
|
—
|
|
|
|
532
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
399
|
|
|
|
—
|
|
|
|
—
|
|
|
|
399
|
|
Foreign
currency transaction loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,935
|
)
|
|
|
(6,935
|
)
|
Balance,
March 31, 2018
|
|
|
—
|
|
|
|
—
|
|
|
|
803,949
|
|
|
|
1
|
|
|
|
187,921
|
|
|
|
(13
|
)
|
|
|
(169,298
|
)
|
|
|
18,611
|
|
Issuance
of common stock in April ($32.10 per share)
|
|
|
—
|
|
|
|
—
|
|
|
|
45,000
|
|
|
|
—
|
|
|
|
1,315
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,315
|
|
Issuance
of common stock in June 2018 under At-the-market offering, net of transaction expenses of $50
|
|
|
—
|
|
|
|
—
|
|
|
|
35,910
|
|
|
|
—
|
|
|
|
1,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,615
|
|
Stock-based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
|
|
—
|
|
|
|
—
|
|
|
|
409
|
|
Foreign
currency transaction loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21
|
)
|
|
|
—
|
|
|
|
(21
|
)
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,087
|
)
|
|
|
(6,087
|
)
|
Balance,
June 30, 2018
|
|
|
—
|
|
|
$
|
—
|
|
|
|
884,859
|
|
|
$
|
1
|
|
|
$
|
191,260
|
|
|
$
|
(34
|
)
|
|
$
|
(175,385
|
)
|
|
$
|
15,842
|
|
See
the accompanying notes to the condensed consolidated financial statements
TONIX
PHARMACEUTICALS HOLDING CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
Thousands)
(unaudited)
|
|
Six months
ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,073
|
)
|
|
$
|
(13,022
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16
|
|
|
|
30
|
|
Stock-based compensation
|
|
|
736
|
|
|
|
808
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(987
|
)
|
|
|
(444
|
)
|
Accounts payable
|
|
|
(358
|
)
|
|
|
342
|
|
Operating
lease liabilities
|
|
|
2
|
|
|
|
—
|
|
Accrued
expenses and other liabilities
|
|
|
(691
|
)
|
|
|
30
|
|
Net
cash used in operating activities
|
|
|
(13,355
|
)
|
|
|
(12,256
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of furniture and fixtures
|
|
|
(10
|
)
|
|
|
(4
|
)
|
Net
cash used by investing activities
|
|
|
(10
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
70
|
|
|
|
—
|
|
Proceeds,
net of $1 and $95 expenses, from sale of common stock
|
|
|
420
|
|
|
|
3,462
|
|
Net
cash provided by financing activities
|
|
|
490
|
|
|
|
3,462
|
|
|
|
|
|
|
|
|
|
|
Effect
of currency rate change on cash
|
|
|
(9
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash,
cash equivalents and restricted cash
|
|
|
(12,884
|
)
|
|
|
(8,817
|
)
|
Cash,
cash equivalents and restricted cash beginning of the period
|
|
|
25,134
|
|
|
|
25,585
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and restricted cash end of period
|
|
$
|
12,250
|
|
|
$
|
16,768
|
|
|
|
|
|
|
|
|
|
|
Non-cash
financing activities:
|
|
|
|
|
|
|
|
|
Issuance
of common stock under employee benefit plan
|
|
$
|
3
|
|
|
$
|
—
|
|
See
the accompanying notes to the condensed consolidated financial statements
NOTE
1 – BUSINESS
Tonix
Pharmaceuticals Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a
clinical-stage biopharmaceutical company focused on discovering and developing small molecules and biologics to treat psychiatric,
pain and addiction conditions, and biological products to improve biodefense through potential medical counter-measures. All drug
product candidates are still in development.
The
consolidated financial statements include the accounts of Tonix Pharmaceuticals Holding Corp. and its wholly owned subsidiaries,
Tonix Sub, Krele LLC, Tonix Pharmaceuticals (Canada), Inc., Tonix Medicines, Inc., Tonix Pharma Holdings Limited and Tonix Pharma
Limited (collectively hereafter referred to as the “Company” or “Tonix”).
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 June 30, 2019,
the Company had working capital of approximately $12.1 million. At June 30, 2019, the Company had an accumulated deficit of approximately
$200.5 million. The Company held cash and cash equivalents of approximately $12.2 million as of June 30, 2019. The Company believes
that these resources will be sufficient to meet its projected operating requirements through the end of 2019, but it does not
have enough resources to meet its operating requirements for the one-year period from the date of filing of this report. These
factors raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company continues to face significant challenges and uncertainties and, as a result, the Company’s available capital resources
may be consumed more rapidly than currently expected due to changes the Company may make in its research and development spending
plans. The Company may seek to obtain additional funding through public or private financing or collaborative arrangements
with strategic partners to increase the funds available to fund operations. However, the Company may not be able to raise capital
with terms acceptable to the Company. Without additional funds, the Company 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 its operations. If any of these events occurs, the Company’s ability to achieve its development
and commercialization goals would be adversely affected. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES
Interim
financial statements
The
unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions
to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The
condensed consolidated balance sheet as of December 31, 2018 contained herein has been derived from audited financial statements.
Operating
results for the three and six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the
year ending December 31, 2019. 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, 2018 included in the Company’s Annual
Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 18, 2019.
Recent
accounting pronouncements
In
February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize
leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU)
model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance
or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
The Company adopted the new standard on January 1, 2019.
The
new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical
expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease
classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining
to land easements; the latter is not applicable to the Company.
The
new standard has had a material effect on the Company’s financial statements. The most significant effects of adoption relate
to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for operating leases; and (2) providing new
disclosures about its leasing activities.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease
recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU
assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases
of those assets in transition. In connection with the adoption of this standard, the Company made changes to its disclosed lease
recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard.
The standard did not have a material impact on the Company’s results of operations or liquidity.
Upon
adoption, the Company recognized operating lease liabilities of approximately $0.3 million based on the present value of the remaining
minimum rental payments under current leasing standards for existing operating leases. The Company recognized corresponding ROU
assets of approximately $0.3 million.
Risks
and uncertainties
The
Company’s primary efforts are devoted to conducting research and development of innovative pharmaceutical and biological
products to address public health challenges. The Company has experienced net losses and negative cash flows from operations since
inception and expects these conditions to continue for the foreseeable future. Further, the Company does not have any commercial
products available for sale and has not generated revenues, and there is no assurance that if its products are approved for sale,
that the Company will be able to generate cash flow to fund operations. In addition, there can be no assurance that the Company’s
research and development will be successfully completed or that any product will be approved or commercially viable.
Use
of estimates
The
preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include the useful life of fixed assets, assumptions used in the fair value of stock-based compensation
and other equity instruments, and the percent of completion of research and development contracts.
Cash,
cash equivalents and restricted cash
The
Company considers cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original
maturity of three months or less when purchased. At June 30, 2019 and December 31, 2018, cash equivalents, which consisted of
money market funds, amounted to $10.2 million and $10.1 million, respectively. Restricted cash at both June 30, 2019 and
December 31, 2018 of approximately $100,000 collateralizes a letter of credit issued in connection with the lease of office space
in New York City (see Note 9).
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 flow:
|
|
June
30,
2019
|
|
|
December
31,
2018
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
12,150
|
|
|
$
|
25,034
|
|
Restricted
cash
|
|
|
100
|
|
|
|
100
|
|
Total
|
|
$
|
12,250
|
|
|
$
|
25,134
|
|
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over
the asset’s estimated useful life, which is three years for computer assets, five years for furniture and all other equipment
and term of lease for leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Depreciation
and amortization expense for the three and six months ended June 30, 2019 was $7,000 and $16,000, respectively, and $15,000 and
$30,000, respectively, for the three and six months ended June 30, 2018. All property and equipment is located in the United States
and Ireland.
Intangible
asset with indefinite lives
During
2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life. Identifiable intangibles
with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances
indicate that its carrying amount may be less than fair value. As of June 30, 2019, the Company believed that no impairment existed.
Leases
The
Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s condensed consolidated
balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities
represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized
at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide
an implicit rate, the Company uses an incremental borrowing rate based on the information available at the transition date and
commencement date 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 also includes any lease payments made
and 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 is recognized on a straight-line
basis over the lease term.
Upon
adoption, the Company recognized operating lease liabilities of approximately $0.3 million based on the present value of the remaining
minimum rental payments under current leasing standards for existing operating leases. The Company also recognized corresponding
ROU assets of approximately $0.3 million. In January 2019, the Company entered into a new operating lease, resulting in the Company
recognizing an operating lease liability of approximately $0.4 million based on the present value of the minimum rental payments.
The Company also recognized corresponding ROU assets of approximately $0.4 million. In April 2019, the Company entered into a
lease amendment, resulting in the Company recognizing an additional operating lease liability of approximately $0.1 million based
on the present value of the minimum rental payments. The Company also recognized a corresponding increase to ROU assets of approximately
$0.1 million.
Research
and development costs
The
Company outsources certain of its research and development efforts and expenses these costs as incurred, including the cost of
manufacturing products for testing, as well as licensing fees and costs associated with planning and conducting clinical trials.
The value ascribed to patents and other intellectual property acquired has been expensed as research and development costs, as
such property related to particular research and development projects and had no alternative future uses.
The
Company estimates its expenses resulting from its obligations under contracts with vendors, clinical research organizations and
consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts
are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods
over which materials or services are provided under such contracts. The Company accounts for trial expenses according to the timing
of various aspects of the trial. The Company determines accrual estimates taking into account discussion with applicable personnel
and outside service providers as to the progress or state of consummation of trials, or the services completed.
During
the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates.
The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to
it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract
research organizations and other third-party vendors.
Stock-based
compensation
All
stock-based payments to employees and to nonemployee directors for their services as directors, 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 relevant service period.
Stock-based
payments to nonemployees are recognized as an expense over the period of performance. Such payments are measured at fair value
at the earlier of the date a performance commitment is reached, or the date performance is completed. In addition, for awards
that vest immediately and are non-forfeitable, the measurement date is the date the award is issued.
Foreign
currency translation
Operations
of the Canadian subsidiary 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 income (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-owner’s 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 June 30, 2019, the Company has not recorded any unrecognized
tax benefits.
Per
share data
Basic
and diluted net loss per common share is calculated by dividing net loss, by the weighted average number of outstanding shares
of common stock, adjusted to give effect to the 1-for-10 reverse stock split, which was effected on November 28,
2018 (see Note 5).
As
of June 30, 2019, and 2018, there were outstanding warrants to purchase an aggregate of 4,964,846 and 68,561 shares, respectively,
of the Company’s common stock. In addition, the Company has issued to employees, directors and consultants, options to acquire
shares of the Company’s common stock, of which 1,090,044 and 140,636 were outstanding at June 30, 2019 and 2018, respectively
(see Note 7). In computing diluted net loss per share for the three and six months ended June 30, 2019 and 2018, no effect has
been given to such options, warrants and restricted stock units as their effect would be anti-dilutive.
NOTE
3 – 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 June 30, 2019, and December 31, 2018, the Company had Level 1 quoted prices in active markets of $10.2 million and $10.1 million,
respectively, consisting entirely of cash equivalents.
NOTE
4 – LICENSE AGREEMENT WITH COLUMBIA UNIVERSITY
On
May 20, 2019, the Company entered into an exclusive License Agreement (the “License Agreement”) with the Trustees
of Columbia University in the City of New York (“Columbia”) pursuant to which Columbia, for itself and on behalf of
the University of Kentucky and the University of Michigan (collectively, the “Institutions”) granted to the Company
an exclusive license, with the right to sublicense, certain patents, technical information and material (collectively, the “Technology”)
related to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”).
Pursuant to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the
Technology for academic research and educational purposes.
The
Company has agreed to pay a six-digit license fee to Columbia as consideration for entering into the License Agreement. The Company
is obligated to use Commercially Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product,
and to achieve specified developmental milestones. The first 50% of the license fee was paid by June 30, 2019, while the remaining
50% license fee has been accrued for within accrued expenses and other current liabilities as of June 30, 2019.
The
Company has agreed to pay Columbia single-digit royalties on net sales of (i) Products sold by the Company or a sublicensee and
(ii) any other products that involve material or technical information related to the Product and transferred to the Company pursuant
to the License Agreement (“Other Products”) sold by the Company or a sublicensee. Royalties on each particular Product
are payable on a country-by-country and Product-by-Product basis until the latest of (i) the date of expiration of the last valid
claim in the last to expire of the issued patents covered by the License Agreement, (ii) a specified period of time after the
first commercial sale of a Product in the country in question, or (iii) expiration of any market exclusivity period granted by
a regulatory agency. Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis
until the later of (i) a specified period of time after the first commercial sale of such particular Other Product in such country
or (ii) expiration of any market exclusivity period granted by a regulatory agency. Royalties payable on net sales of the Product
and Other Products may be reduced by 50% of the royalties payable by the Company to any third party for intellectual property
rights which are necessary for the practice of the rights licensed to the Company under the License Agreement, provided that the
royalty payable on a Product or Other Product may not be reduced by more than 50%.
The
Company is also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis
upon the achievement of certain development, approval and sales milestones related to a Product. In addition, the Company shall
pay Columbia 5% of consideration, other than royalty payments and certain other categories of consideration, payable to the Company
by a sublicensee. As of June 30, 2019, no milestone payments have been accrued or paid in relation to this agreement.
NOTE
5 – STOCKHOLDERS’ EQUITY
On
November 26, 2018, the Company filed a Certificate of Change with the Nevada Secretary of State, which was effective November
28, 2018. Pursuant to the Certificate of Change, the Company effected a 1-for-10 reverse stock split of its issued and outstanding
shares of common stock, $0.001 par value, whereby 15,293,782 outstanding shares of the Company’s common stock were exchanged
for 1,529,427 shares of the Company’s common stock. In connection with the reverse stock split, the Company issued an additional
2,833 shares of the Company’s common stock due to rounding. Furthermore, pursuant to the Certificate of Change, the number
of authorized shares of common stock was reduced from 150 million to 15 million. All per share amounts and number of shares in
the condensed consolidated financial statements and related notes have been retroactively restated to reflect the reverse stock
split. On May 3, 2019, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Nevada Secretary
of State increasing its authorized shares of common stock from 15 million to 150 million.
NOTE
6 – SALE OF COMMON STOCK
December
2018 Financing
On
December 7, 2018, the Company entered into an underwriting agreement with Alliance Global Partners (“AGP”) and Dawson
James Securities, Inc. (“Dawson”) (collectively “the Underwriters”) pursuant to which the Company sold
securities consisting of 861,710 Class A Units at a public offering price of $3.50 per unit, with each unit consisting of one
share of Common Stock and a Warrant to purchase one share of Common Stock, and 11,984 Class B Units at a public offering price
of $1,000 per unit, with each unit consisting of one share of Series A Convertible Preferred Stock, with a conversion price of
$3.50 per share, and Warrants to purchase 285.7143 shares of Common Stock. The Warrants have an exercise price of $3.50, are exercisable
and expire five years from the date of issuance.
The
Company also granted the underwriters a 45-day option to purchase up to 642,856 shares of common stock and/or additional Warrants
to purchase up to 642,856 additional shares of common stock.
The
December 2018 Financing closed on December 11, 2018. The Underwriters purchased the Units at a seven-percent discount to the public
offering price, for an aggregate discount of approximately $1.1 million (or $0.24 per share). The Company received net proceeds
from the December 2018 Financing of approximately $13.6 million, after deducting the underwriting discount and other offering
expenses of approximately $0.4 million. Additionally, the Underwriters fully exercised the over-allotment option related to the
warrants and purchased additional warrants to acquire 640,000 shares of common stock for net proceeds of approximately $6,000.
On
December 13, 2018, the 2018 Underwriters partially exercised the over-allotment option and purchased 250,000 shares of common
stock for net proceeds of approximately $0.8 million, net of an aggregate discount of $0.1 million (or $0.24 per share).
During
the first quarter of 2019, the remaining 9,856 shares of Series A convertible preferred stock were converted into 2,816,000 shares
of common stock. As of March 11, 2019, all Series A convertible preferred stock has been converted into common stock.
2018
Lincoln Park Transaction
On
October 18, 2018, the Company entered into a purchase agreement (the “2018 Purchase Agreement”) and a registration
rights agreement (the “2018 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the 2018 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $15,000,000 of the Company’s
common stock (subject to certain limitations) from time to time during the term of the 2018 Purchase Agreement. Pursuant to the
terms of the 2018 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 2018 Purchase Agreement.
Pursuant
to the terms of the 2018 Purchase Agreement, at the time the Company signed the 2018 Purchase Agreement and the 2018 Registration
Rights Agreement, the Company issued
35,000
shares of common stock to Lincoln Park
as consideration for its commitment to purchase shares of our common stock under the 2018 Purchase Agreement. The commitment shares
were valued at $245,000 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction
to equity as a cost of capital to be raised under the 2018 Purchase Agreement.
During
the six months ended June 30, 2019, the Company sold an aggregate of approximately 227,000 shares of common stock under the 2018
Purchase Agreement, for gross proceeds of approximately $0.4 million.
Under
applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99% of the shares of its common
stock outstanding immediately prior to the execution of the 2018 Purchase Agreement (approximately 262,000 shares) to Lincoln
Park under the 2018 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of its common
stock to Lincoln Park under the 2018 Purchase Agreement equals or exceeds a threshold amount. As the Company has issued approximately
262,000 shares to Lincoln Park, by June 30, 2019, under the 2018 Purchase Agreement at less than the threshold amount, the Company
will not sell any additional shares under the 2018 Purchase Agreement without shareholder approval.
2018
At-the-Market Offering
On
May 1, 2018, the Company entered into a sales agreement (the “Sales Agreement”), with Cowen and Company, LLC., (“Cowen”),
pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price
of up to $9.5 million in at-the-market offerings (“ATM”) sales. On the same day, the Company filed a prospectus supplement
under its existing shelf registration relating to the Sales Agreement. Cowen acted as sales agent and was paid a 3% commission
on each sale under the Sales Agreement. The Company’s common stock was sold at prevailing market prices at the time of the
sale, and, as a result, prices varied.
During
the six months ended June 30, 2019, the Company sold an aggregate of 21,052 shares of common stock under the ATM for net proceeds
of approximately $33,000.
During
the six months ended June 30, 2018, the Company sold an aggregate of 35,910 shares of common stock using the ATM, resulting in
net proceeds of $1.6 million, net of expenses of approximately $50,000 of Cowen’s commission.
2017
Lincoln Park Transaction
On
September 28, 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) and a registration
rights agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $15,000,000 of its
common stock (subject to certain limitations) from time to time during the term of the 2017 Purchase Agreement. Pursuant to the
terms of the 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 2017 Purchase Agreement.
Pursuant
to the terms of the 2017 Purchase Agreement, at the time the Company signed the 2017 Purchase Agreement and the Registration Rights
Agreement, the Company issued 7,304 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares
of its common stock under the Purchase Agreement. The commitment shares were valued at $300,000, recorded as an addition to equity
for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the Purchase
Agreement.
During
the six months ended June 30, 2018, the Company sold an aggregate of approximately 63,000 shares of common stock under the 2017
Purchase Agreement, for net proceeds of approximately $1.8 million, net of expenses of approximately $45,000. The Company did
not sell any shares of common stock under the 2017 Purchase Agreement during the six months ended June 30, 2019.
Under
applicable rules of the NASDAQ Global Market, the Company could not issue or sell more than 19.99% of the shares of its common
stock outstanding immediately prior to the execution of the 2017 Purchase Agreement (approximately 150,000 shares) to Lincoln
Park under the 2017 Purchase Agreement without stockholder approval, unless the average price of all applicable sales of its common
stock to Lincoln Park under the 2017 Purchase Agreement equals or exceeds a threshold amount. As the Company has issued approximately
150,000 shares to Lincoln Park, by December 31, 2018, under the 2017 Purchase Agreement at less than the threshold amount, the
Company will not sell any additional shares under the 2017 Purchase Agreement without shareholder approval.
NOTE
7 – STOCK-BASED COMPENSATION
2018
Stock Incentive Plan
On
June 8, 2018, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2018 Stock Incentive Plan (the
“2018 Plan”). The 2018 Plan provided for the issuance of up to 132,000 shares of common stock. With the adoption of
the 2019 Plan (as defined below), no further grants may be made under the 2018 Plan.
2019
Stock Incentive Plan
On
May 3, 2019, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the
“2019 Plan”).
Under
the terms of the 2019 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) SARs,
(4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2019 Plan provides for the issuance of up to 1,400,000
shares of common stock, which amount will be increased to the extent that awards granted under the 2019 Plan and the Plans
are forfeited, expire or are settled for cash (except as otherwise provided in the 2019 Plan). The Board of Directors determines
the exercise price, vesting and expiration period of the grants under the 2019 Plan. However, the exercise price of an incentive
stock option may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder
and 100% of fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted
market price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration
period of grants under the 2019 Plan may not more than ten years. As of June 30, 2019, 558,300 shares were available for future
grants under the 2019 Plan.
General
A
summary of the stock option activity and related information for the Plans for the six months ended June 30, 2019 is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31,
2018
|
|
|
137,145
|
|
|
$
|
143.09
|
|
|
|
8.14
|
|
|
$
|
|
|
Grants
|
|
|
955,100
|
|
|
$
|
2.17
|
|
|
|
|
|
|
$
|
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures
or expirations
|
|
|
(2,201
|
)
|
|
|
35.42
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
1,090,044
|
|
|
$
|
19.84
|
|
|
|
9.32
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected
to vest at June 30, 2019
|
|
|
1,090,044
|
|
|
$
|
19.84
|
|
|
|
9.32
|
|
|
$
|
—
|
|
Exercisable at June 30, 2019
|
|
|
129,757
|
|
|
$
|
131.04
|
|
|
|
5.96
|
|
|
$
|
—
|
|
The
aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise
price less than the Company’s closing stock price at the respective dates.
The
weighted average fair value of options granted during the three and six months ended 2019 was $1.65 per share and $1.67 per share,
respectively. The weighted average fair value of options granted during the three and six months ended 2018 was $32.93 per share
and $28.07 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. For employees
and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. Most stock
options granted pursuant to the Plans typically vest 1/3rd 12 months from the date of grant and 1/36th each month thereafter for
24 months and expire ten years from the date of grant. In addition, the Company issues options to directors which vest over a
one-year period. In addition, the Company also issues performance-based options to executive officers, which options vest when
the target parameters are met, and premium options which have an exercise price greater than the grant date fair value, subject
in each case to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized
over the applicable vesting period using the straight-line method.
The
assumptions used in the valuation of stock options granted during the six months ended June 30, 2019 and 2018 were as follows:
|
|
Six
Months Ended
June 30, 2019
|
|
|
Six
Months Ended
June 30, 2018
|
|
Risk-free interest
rate
|
|
|
2.15%
to 2.54%
|
|
|
|
2.54%
to 2.81%
|
|
Expected term of option
|
|
|
3.00
to 10.00 years
|
|
|
|
4.50
to 7.00 years
|
|
Expected stock price
volatility
|
|
|
107.12%
to 109.72%
|
|
|
|
99.65%
to 102.00%
|
|
Expected
dividend yield
|
|
|
0.0%
|
|
|
|
0.0%
|
|
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 $0.4 million and $0.7 million was recognized for the three and six-month periods
ended June 30, 2019, respectively, and $0.4 million and $0.8 million was recognized for the three and six-month periods ended
June 30, 2018, respectively.
As
of June 30, 2019, the Company had approximately $2.5 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 2.03 years.
2018
Employee Stock Purchase Plan
On
June 8, 2018, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2018 Employee Stock Purchase
Plan (the “2018 ESPP”). As a result of adoption of the 2019 ESPP, as defined below, by the stockholders, no further
grants may be made under the 2018 ESPP Plan.
2019
Employee Stock Purchase Plan
On
May 3, 2019, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan
(the “2019 ESPP”).
The
2019 ESPP allows eligible employees to purchase up to an aggregate of 150,000 shares of the Company’s common stock.
Under the 2019 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 2019 ESPP is for six months, which can be modified from time-to-time.
Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s
accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of
the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must
designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period
for the purchase of stock under the 2019 ESPP, subject to the statutory limit under the Code. As of June 30, 2019, 150,000 shares
were available for future grants under the 2019 ESPP.
The
2019 and 2018 ESPP are considered compensatory plans with the related compensation cost written off over the six-month offering
period. The compensation expense related to the 2019 ESPP for the six months ended June 30, 2019 and 2018 was $24,000 and $0,
respectively. As of December 31, 2018, approximately $38,000 of employee payroll deductions, which have been withheld since July
1, 2018, the commencement of the offering period ending December 31, 2018, are included in accrued expenses in the accompanying
balance sheet. In January 2019, 1,758 shares that were purchased as of December 31, 2018, were issued under the 2018 ESPP, and
approximately $3,000 of employee payroll deductions accumulated at December 31, 2018, related to acquiring such shares, was transferred
from accrued expenses to additional paid in capital. The remaining $35,000 was returned to the employees. As of June 30, 2019,
approximately $45,000 of employee payroll deductions, which have been withheld since January 1, 2019, the commencement of the
offering period ending June 30, 2019, are included in accrued expenses in the accompanying balance sheet. In August 2019, 23,792
shares that were purchased as of June 30, 2019, were issued under the 2019 ESPP, and approximately $29,000 of employee payroll
deductions accumulated at June 30, 2019, related to acquiring such shares, was transferred from accrued expenses to additional
paid in capital. The remaining $16,000 will be returned to the employees in Q3 2019.
Restricted
Stock Units
In
May 2017, a total of 563 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash,
with a one-year vesting from the grant date and a fair value of $229 at the date of grant. 488 shares of the Company’s common
stock were issued upon the vesting of such RSU’s during the year ended December 31, 2017. The remaining 75 shares of common
stock were issued during the three months ended March 31, 2018.
During
the six months ended June 30, 2019 and 2018, no stock-based compensation expense related to RSU grants was expensed.
NOTE
8 – STOCK WARRANTS
The
following table summarizes information with respect to outstanding warrants to purchase common stock of the Company at June 30,
2019:
Exercise
|
|
|
Number
|
|
|
Expiration
|
Price
|
|
|
Outstanding
|
|
|
Date
|
$
|
3.50
|
|
|
|
4,905,710
|
|
|
December
2023
|
$
|
63.00
|
|
|
|
54,400
|
|
|
October
2021
|
$
|
69.00
|
|
|
|
4,736
|
|
|
October
2021
|
|
|
|
|
|
4,964,846
|
|
|
|
During
the six months ended June 30, 2019, 20,000 warrants with an exercise price of $3.50 were exercised for proceeds of approximately
$70,000.
During
the six months ended June 30, 2019 and June 30, 2018, 233 and 108 warrants with a per share exercise price of $2,500 and $1,200,
respectively, expired.
NOTE
9 – 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 June 30, 2019, the Company has right-of-use assets of $0.6 million and a total lease liability for operating leases of $0.6
million of which $0.1 million is included in operating lease liabilities, noncurrent and $0.5 million is included in operating
lease liabilities, current.
At
June 30, 2019, 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,
|
|
|
|
Remainder
of 2019
|
|
$
|
228
|
|
2020
|
|
|
360
|
|
2021
|
|
|
6
|
|
|
|
$
|
594
|
|
In
January 2019, the Company entered into a new operating lease, resulting in the Company recognizing an operating lease liability
of approximately $0.4 million based on the present value of the minimum rental payments. The Company also recognized corresponding
ROU assets of approximately $0.4 million. In April 2019, the Company entered into a lease amendment, resulting in the Company
recognizing an additional operating lease liability of approximately $0.1 million based on the present value of the minimum rental
payments. The Company also recognized a corresponding increase to ROU assets of approximately $0.1 million. 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 commencement date in determining the present value of lease payments. Operating lease expense was $0.1 million
and $0.2 million for the three and six months ended June 30, 2019. Amortization expense was $0.1 million and $0.2 million for
the three and six months ended June 30, 2019.
Other
information related to leases was as follows:
|
|
Six
Months Ended June,
|
|
Cash paid for amounts included in the measurement
of lease liabilities:
|
|
2019
|
|
Operating
cash flow from operating leases (in thousands)
|
|
$
|
221
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
Operating
leases
|
|
|
1.77
years
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
Operating
leases
|
|
|
3.36
|
%
|
NOTE
10 – COMMITMENTS
Research
and development contracts
The
Company has entered into contracts with various contract research organizations with outstanding commitments aggregating approximately
$7.7 million at June 30, 2019 for future work to be performed.
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
100 percent of each participant’s pretax contributions of up to six percent of his or her eligible compensation, and the
Company is also required to make a contribution equal to three percent of each participant’s salary, on an annual basis,
subject to limitations under the Code. The Company charged operations $19,000 and $65,000 for the three and six months ended June
30, 2019, respectively, and $31,000 and $62,000 for the three and six months ended June 30, 2018, respectively, for contributions
under the 401(k) Plan.
NOTE
11 – SUBSEQUENT EVENTS
July
2019 Financing
On
July 16, 2019, the Company entered into an underwriting agreement with Aegis Capital Corp., as representatives of the underwriters
(the “Underwriters”), relating to the issuance and sale of 9,000,000 shares of its common stock, in an underwritten
public offering (the “July 2019 Financing”). The public offering price for each share of common stock was $0.60. The
Company granted the Underwriters a 45-day option to purchase up to an additional 1,350,000 shares of common stock to cover over-allotments,
if any.
The
July 2019 Financing closed on July 18, 2019. The Underwriters purchased the shares at an eight percent discount to the then current
public price, for an aggregate discount of $0.4 million. The Company incurred offering expenses to-date of approximately $0.2
million. The Company received net proceeds of approximately $4.8 million.
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” and “continue,” or similar words. Those statements include statements regarding the intent,
belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are
based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking
statements.
The
following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. Readers are urged to carefully review and consider the various disclosures
made by us in this report and in our other reports filed with the Securities and Exchange Commission, including our Annual Report
on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 18, 2019. Important
factors known to us could cause actual results to differ materially from those in forward-looking statements. We
undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated
events or changes in the future operating results over time. We believe that its assumptions are based upon reasonable data derived
from and known about our business and operations. No assurances are made that actual results of operations or the results of our
future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited
to: substantial competition; our possible need for additional financing; uncertainties of patent protection and litigation; uncertainties
of government or third party payor reimbursement; limited research and development efforts and dependence upon third parties;
and risks related to failure to obtain clearances or approvals from the United States Food and Drug Administration, or FDA, and
noncompliance with FDA regulations.
Business
Overview
We
are a clinical-stage biopharmaceutical company focused on discovering and developing small molecules and biologics to treat psychiatric,
pain and addiction conditions, to improve biodefense through potential medical counter-measures and to prevent and treat organ
transplant rejection. Our most advanced drug development program is focused on delivering a safe and effective long-term treatment
for posttraumatic stress disorder, or PTSD. PTSD is characterized by chronic disability, inadequate treatment options, high utilization
of healthcare services, and significant economic burden. We have assembled a management team with significant industry experience
to lead the development of our product candidates. We complement our management team with a network of scientific, clinical, and
regulatory advisors that includes recognized experts in the fields of PTSD, other central nervous system disorders and biodefense.
Our
lead product candidate, TNX-102 SL, is a proprietary low-dose cyclobenzaprine, or CBP, sublingual tablet, designed for bedtime
administration. TNX-102 SL is an investigational new drug that has not been approved for any indication. TNX-102 SL is in Phase
3 development as a potential treatment for PTSD. We are currently enrolling the Phase 3 RECOVERY trial, which is a double-blind,
placebo-controlled study evaluating daily bedtime administration of TNX-102 SL in individuals with PTSD from trauma within 9 years
of screening. The FDA has conditionally accepted the proposed trade name Tonmya
®
for TNX-102 SL for the treatment
of PTSD. Tonix is also developing TNX-102 SL as a bedtime treatment for fibromyalgia and agitation in Alzheimer’s disease
under separate Investigational New Drug applications (IND) to support potential pivotal efficacy studies. The fibromyalgia program
is in Phase 3 development and the agitation in Alzheimer’s program is Phase 2 ready. We plan to meet with FDA in October
2019 to discuss a new program to study TNX-102 SL as a treatment for alcohol use disorder, or AUD, which will be developed under
a separate IND. Our development pipeline also includes TNX-1300 (T172R/G173Q double-mutant cocaine esterase 200 mg, i.v. solution)
which is in Phase 2 development for the treatment of cocaine intoxication. TNX-1300 is a recombinant protein enzyme produced through
rDNA technology in E. coli bacteria. TNX-1300 is an investigational new biologic that has not been approved for any indication.
TNX-601 (tianeptine oxalate) is in the pre-IND application stage, also for the treatment of PTSD but by a different mechanism
from TNX-102 SL and designed for daytime dosing. TNX-601 is also in development for the potential indication of neurocognitive
dysfunction associated with corticosteroid use. Tonix’s two biodefense products are TNX-801 and TNX-701. TNX-801 (live virus
vaccine for percutaneous (scarification) administration) is a potential smallpox-preventing vaccine based on a synthetic version
of horsepox virus and is currently in the pre-IND application stage. TNX-701 is a biodefense development program for protection
from radiation injury in the pre-IND application stage. Finally, TNX-1500 is being developed to prevent and treat organ transplant
rejection, as well as to treat autoimmune conditions, and is in the pre-IND application stage.
Current
Operating Trends
Our
current research and development efforts are focused on developing Tonmya for the treatment of PTSD and TNX-102 SL for the
treatment of fibromyalgia, agitation in Alzheimer’s Disease and AUD, but we also expend effort on our other pipeline
programs, primarily related to TNX-1300, TNX-601, TNX-701, TNX-801 and TNX-1500. Our research and development expenses
consist of manufacturing work and the cost of drug ingredients used in such work, fees paid to consultants for work related
to clinical trial design and
regulatory activities, fees paid to providers for conducting various clinical studies as well as for the analysis of the results
of such studies, and for other medical research addressing the potential efficacy and safety of our study drugs. We believe that
significant investment in product development is a competitive necessity, and we plan to continue these investments in order to
be in a position to realize the potential of our product candidates and proprietary technologies.
We
expect that all of our research and development expenses in the near-term future will be incurred in support of our current and
future preclinical and clinical development programs rather than technology development. These expenditures are subject to numerous
uncertainties relating to timing and cost to completion. We test compounds in numerous preclinical studies for safety, toxicology
and efficacy. At the appropriate time, subject to the approval of regulatory authorities, we expect to conduct early-stage clinical
trials for each drug candidate. We anticipate funding these trials ourselves, and possibly with the assistance of federal grants,
contracts or other agreements. As we obtain results from trials, we may elect to discontinue or delay clinical trials for certain
products in order to focus our resources on more promising products. Completion of clinical trials may take several years, and
the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.
The
commencement and completion of clinical trials for our products may be delayed by many factors, including lack of efficacy during
clinical trials, unforeseen safety issues, slower than expected participant recruitment, lack of funding or government delays.
In addition, we may encounter regulatory delays or rejections as a result of many factors, including results that do not support
the intended safety or efficacy of our product candidates, perceived defects in the design of clinical trials and changes in regulatory
policy during the period of product development. As a result of these risks and uncertainties, we are unable to accurately estimate
the specific timing and costs of our clinical development programs or the timing of material cash inflows, if any, from our product
candidates. Our business, financial condition and results of operations may be materially adversely affected by any delays in,
or termination of, our clinical trials or a determination by the FDA that the results of our trials are inadequate to justify
regulatory approval, insofar as cash in-flows from the relevant drug or program would be delayed or would not occur.
Results
of Operations
We
anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, such as the progress
of our research and development efforts and the timing and outcome of regulatory submissions. Due to these uncertainties, accurate
predictions of future operations are difficult or impossible to make.
Three
Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
Research
and Development Expenses
.
Research and development expenses for the three months ended June 30, 2019 were $3.6 million,
a decrease of $0.5 million, or 12%, from $4.1 million for the three months ended June 30, 2018. This decrease is predominately
due to timing of development milestones related to the PTSD HONOR study in 2018, which resulted in a $0.8 million increase in
clinical expenses in 2018. Offsetting this decrease, is an increase in non-clinical of $0.2 million in 2019 related to our development
pipeline.
General
and Administrative Expenses
.
General and administrative expenses for the three months ended June 30, 2019 were $2.4
million, an increase of $0.3 million, or 14%, from $2.1 million incurred in the three months ended June 30, 2018. The increase
in primarily due to an increase in legal fees of $0.1 million due to increased patent prosecution costs and an increase in insurance
expenses of $0.2 million due to higher premiums in 2019.
Net
Loss
.
As a result of the forgoing, the net loss for the three months ended June 30, 2019 was $5.8 million, compared
to a net loss of $6.1 million for the three months ended June 30, 2018.
Six
Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Research
and Development Expenses
.
Research and development expenses for the six months ended June 30, 2019 were $7.5 million,
a decrease of $1.7 million, or 18%, from $9.2 million for the six months ended June 30, 2018. This decrease is predominately due
to a pharmacokinetic bridging study of TNX-102 SL that was conducted in the first quarter of 2018 and due to the ramp-up of development
work related to the PTSD HONOR study in 2018. Offsetting the decrease is an increase in manufacturing expenses of $0.5 million,
period over period, due to TNX-601 formulation work in 2019.
General
and Administrative Expenses
.
General and administrative expenses for the six months ended June 30, 2019 were $4.8
million, an increase of $0.9 million, or 23%, from $3.9 million incurred in the six months ended June 30, 2018. The increase in
primarily due to an increase in legal fees of $0.1 million due to increased patent prosecution costs, an increase in investor
and public relations expenses of $0.1 million due to increased investor meetings and an increase in insurance expenses of $0.4
million due to higher premiums in 2019.
Net
Loss
. As a result of the foregoing, the net loss for the six months ended June 30, 2019 was $12.1 million, compared to
a net loss of $13.0 million for the six months ended June 30, 2018.
License
Agreement with Columbia University
On
May 20, 2019, we entered into an exclusive License Agreement (the “License Agreement”) with the Trustees of Columbia
University in the City of New York (“Columbia”) pursuant to which Columbia, for itself and on behalf of the University
of Kentucky and the University of Michigan (collectively, the “Institutions”) granted us an exclusive license, with
the right to sublicense, certain patents, technical information and material (collectively, the “Technology”) related
to a double-mutant cocaine esterase, and to develop and commercialize products thereunder (each, a “Product”). Pursuant
to the terms of the License Agreement, Columbia has reserved for itself and the Institutions the right to practice the Technology
for academic research and educational purposes.
We
have agreed to pay a six-digit license fee to Columbia as consideration for entering into the License Agreement. We are obligated
to use Commercially Reasonable Efforts, as defined in the License Agreement, to develop and commercialize the Product, and to
achieve specified developmental milestones. The first 50% of the license fee was paid by June 30, 2019, while the remaining 50%
license fee has been accrued for within accrued expenses and other current liabilities as of June 30, 2019.
We
have agreed to pay Columbia single-digit royalties on net sales of (i) Products sold by us or a sublicensee and (ii) any other
products that involve material or technical information related to the Product and transferred to us pursuant to the License Agreement
(“Other Products”) sold by us or a sublicensee. Royalties on each particular Product are payable on a country-by-country
and Product-by-Product basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the
issued patents covered by the License Agreement, (ii) a specified period of time after the first commercial sale of a Product
in the country in question, or (iii) expiration of any market exclusivity period granted by a regulatory agency. Royalties on
each particular Other Product are payable on a country-by-country and product-by-product basis until the later of (i) a specified
period of time after the first commercial sale of such particular Other Product in such country or (ii) expiration of any market
exclusivity period granted by a regulatory agency. Royalties payable on net sales of the Product and Other Products may be reduced
by 50% of the royalties payable by us to any third party for intellectual property rights which are necessary for the practice
of the rights licensed to us under the License Agreement, provided that the royalty payable on a Product or Other Product may
not be reduced by more than 50%.
We
are also obligated to make contingent milestone payments to Columbia totaling $3 million on a Product-by-Product basis upon the
achievement of certain development, approval and sales milestones related to a Product. In addition, we shall pay Columbia 5%
of consideration, other than royalty payments and certain other categories of consideration, payable to us by a sublicensee. As
of June 30, 2019, no milestone payments have been accrued or paid in relation to this agreement.
Liquidity
and Capital Resources
As
of June 30, 2019, we had working capital of $12.1 million, comprised primarily of cash and cash equivalents of $12.2 million and
prepaid expenses and other of $2.0 million, which was offset by $1.0 million of accounts payable, $0.6 million of accrued expenses
and other current liabilities and $0.4 million of current operating lease liabilities. A significant portion of the accounts payable
and accrued expenses are due to work performed in relation to our ongoing Phase 3 RECOVERY study of TNX-102 SL for the treatment
of PTSD. For the six months ended June 30, 2019 and 2018, we used approximately $13.4 million and $12.3 million of cash in operating
activities, respectively, which represents cash outlays for research and development and general and administrative expenses in
such periods. The increase in cash used in operations is due primarily to non-recurring items including close-out costs for the
Phase 3 HONOR study and start-up costs related to the current Phase 3 RECOVERY study incurred during the first quarter of 2019.
Additionally, the Company’s annual insurance premiums also increased over the prior year, the payments for which all occur
in the first quarter. For the six months ended June 30, 2019, net proceeds from financing activities were from the sale of our
common stock of approximately $0.4 million and approximately $70,000 through the exercise of warrants into common stock. In the
comparable 2018 period, approximately $3.5 million was raised through the sale of shares of common stock.
Cash
used by investing activities for the six months ended June 30, 2019 and 2018, was $10,000 and $4,000 respectively, related to
the purchase of property and equipment.
July
2019 Financing
On
July 16, 2019, we entered into an underwriting agreement with Aegis Capital Corp., as representatives of the underwriters (the
“Underwriters”), relating to the issuance and sale of 9,000,000 shares of our common stock, in an underwritten public
offering (the “July 2019 Financing”). The public offering price for each share of common stock was $0.60. We granted
the Underwriters a 45-day option to purchase up to an additional 1,350,000 shares of common stock to cover over-allotments, if
any.
The
July 2019 Financing closed on July 18, 2019. The Underwriters purchased the shares at an eight percent discount to the then current
public price, for an aggregate discount of $0.4 million (or $0.048 per share). We incurred offering expenses to-date of approximately
$0.2 million. We received net proceeds of approximately $4.8 million.
2018
At-the-Market Offering
On
May 1, 2018, we entered into a sales agreement (the “Sales Agreement”), with Cowen and Company, LLC., (“Cowen”),
pursuant to which we may issue and sell, from time to time, shares of our common stock having an aggregate offering price of up
to $9.5 million in at-the-market offerings (“ATM”) sales. On the same day, we filed a prospectus supplement under
its existing shelf registration relating to the Sales Agreement. Cowen acted as sales agent and was paid a 3% commission
on each sale under the Sales Agreement. Our common stock was sold at prevailing market prices at the time of the sale, and, as
a result, prices varied.
During
the six months ended June 30, 2019, we sold an aggregate of 21,052 shares of common stock under the ATM for net proceeds of approximately
$33,000.
During
the quarter ended June 30, 2018, we sold an aggregate of 35,910 shares of common stock using the ATM, resulting in net proceeds
of $1.6 million, net of expenses of approximately $50,000 of Cowen’s commission.
2018
Lincoln Park Transaction
On
October 18, 2018, we entered into a purchase agreement (the “2018 Purchase Agreement”) and a registration rights agreement
(the “2018 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant
to the terms of the 2018 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $15,000,000 of our common stock
(subject to certain limitations) from time to time during the term of the 2018 Purchase Agreement. Pursuant to the terms of the
2018 Registration Rights Agreement, we filed with the SEC a registration statement to register for resale under the Securities
Act the shares that have been or may be issued to Lincoln Park under the 2018 Purchase Agreement.
Pursuant
to the terms of the 2018 Purchase Agreement, at the time we signed the 2018 Purchase Agreement and the 2018 Registration Rights
Agreement, we issued
35,000
shares of common stock to Lincoln Park as consideration
for its commitment to purchase shares of our common stock under the 2018 Purchase Agreement. The commitment shares were valued
at $245,000 and recorded as an addition to equity for the issuance of the common stock and treated as a reduction to equity as
a cost of capital to be raised under the 2018 Purchase Agreement.
During
the six months ended June 30, 2019, we sold an aggregate of approximately 227,000 shares of common stock under the 2018 Purchase
Agreement, for gross proceeds of approximately $0.4 million.
Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the 2018 Purchase Agreement (approximately 262,000 shares) to Lincoln Park under the 2018
Purchase Agreement without stockholder approval, unless the average price of all applicable sales of our common stock to Lincoln
Park under the 2018 Purchase Agreement equals or exceeds a threshold amount. As we have issued approximately 262,000 shares to
Lincoln Park, by June 30, 2019, under the 2018 Purchase Agreement at less than the threshold amount, we will not sell any additional
shares under the 2018 Purchase Agreement without shareholder approval.
2017
Lincoln Park Transaction
On
September 28, 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) and a registration
rights agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Pursuant to the terms of the 2017 Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $15,000,000 of
its common stock (subject to certain limitations) from time to time during the term of the 2017 Purchase Agreement. Pursuant to
the terms of the 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 2017 Purchase Agreement.
Pursuant
to the terms of the 2017 Purchase Agreement, at the time the Company signed the 2017 Purchase Agreement and the Registration Rights
Agreement, the Company issued 7,304 shares of common stock to Lincoln Park as consideration for its commitment to purchase shares
of its common stock under the 2017 Purchase Agreement. The commitment shares were valued at $300,000, recorded as an addition
to equity for the issuance of the common stock and treated as a reduction to equity as a cost of capital to be raised under the
2017 Purchase Agreement.
During
the six months ended June 30, 2018, we sold an aggregate of approximately 63,000 shares of common stock under the 2017 Purchase
Agreement, for net proceeds of approximately $1.8 million, net of expenses of approximately $45,000.
Under
applicable rules of the NASDAQ Global Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the 2017 Purchase Agreement (approximately 150,000 shares) to Lincoln Park under the 2017
Purchase Agreement without stockholder approval, unless the average price of all applicable sales of our common stock to Lincoln
Park under the 2017 Purchase Agreement equals or exceeds a threshold amount. As we had issued approximately
150,000 shares to Lincoln Park, by December 31, 2018, under the 2017 Purchase Agreement at less than the threshold amount, we
will not sell any additional shares under the 2017 Purchase Agreement without shareholder approval.
Future
Liquidity Requirements
We
expect to incur losses from operations for the near future. We expect to incur increasing research and development expenses, including
expenses related to additional clinical trials. We will not have enough resources to meet our operating requirements for the one-year
period from filing date of this report.
Our
future capital requirements will depend on a number of factors, including the progress of our research and development of product
candidates, the timing and outcome of regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims and other intellectual property rights, the status of competitive products, the availability
of financing and our success in developing markets for our product candidates.
We
will need to obtain additional capital in order to fund future research and development activities. Future financing may include
the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we are able to
raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts
owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue
additional equity or debt securities, shareholders may experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common stock.
If
additional financing is not available or is not available on acceptable terms, we may be required to delay, reduce the scope of
or eliminate our research and development programs, reduce our commercialization efforts or obtain funds through arrangements
with collaborative partners or others that may require us to relinquish rights to certain product candidates that we might otherwise
seek to develop or commercialize independently.
Stock
Compensation
Stock
Options
On
June 8, 2018, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2018 Stock Incentive Plan (the “2018 Plan”).
The 2018 Plan provided for the issuance of up to 132,000 shares of common stock. With the adoption of the 2019 Plan (as defined
below), no further grants may be made under the 2018 Plan.
On
May 3, 2019, our stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”).
Under
the terms of the 2019 Plan, we may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) SARs, (4) RSUs,
(5) other stock-based awards, and (6) cash-based awards. The 2018 Plan provides for the issuance of up to 1,400,000 shares of
common stock, which amount will be increased to the extent that awards granted under the 2019 Plan and the Plans are forfeited,
expire or are settled for cash (except as otherwise provided in the 2019 Plan). The Board of Directors determines the exercise
price, vesting and expiration period of the grants under the 2019 Plan. However, the exercise price of an incentive stock option
may not be less than 110% of fair value of the common stock at the date of the grant for a 10% or more shareholder and 100% of
fair value for a grantee who is not a 10% shareholder. The fair value of the common stock is determined based on quoted market
price or in absence of such quoted market price, by the Board of Directors in good faith. Additionally, the expiration period
of grants under the 2019 Plan may not more than ten years. As of June 30, 2019, 558,300 shares were available for future grants
under the 2019 Plan.
The
weighted average fair value of options granted during the three and six months ended 2019 was $1.65 per share and $1.67 per
share, respectively. The weighted average fair value of options granted during the three and six months ended 2018 was $32.93
per share and $28.07 per share, respectively.
We
measure the fair value of stock options on the date of grant, based on the Black Scholes option pricing model using certain assumptions
discussed in the following paragraph, and the closing market price of our common stock on the date of the grant. For employees
and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. Most stock
options granted pursuant to the Plans typically vest 1/3rd 12 months from the date of grant and 1/36th each month thereafter for
24 months and expire ten years from the date of grant. In addition, we issue options to directors which vest over a one-year period.
In addition, we also issue performance-based options to executive officers, which options vest when the target parameters are
met, subject to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized
over the applicable vesting period using the straight-line method.
Stock-based
compensation expense relating to options granted of $0.4 million and $0.7 million was recognized for the three and six-month periods
ended June 30, 2019, respectively, and $0.4 million and $0.8 million was recognized for the three and six-month periods ended
June 30, 2018, respectively.
As
of June 30, 2019, we had approximately $2.5 million of total unrecognized compensation cost related to non-vested awards granted
under the Plans, which we expect to recognize over a weighted average period of 2.03 years.
Employee
Stock Purchase Plan
On
May 3, 2019, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2019 Employee Stock Purchase Plan
(the “2019 ESPP”). As a result of adoption of the 2019 ESPP by the stockholders, no further grants may be made under
the Tonix Pharmaceuticals Holdings Corp. 2018 Employee Stock Purchase Plan (“2018 ESPP”).
The
2019 ESPP allows eligible employees to purchase up to an aggregate of 150,000 shares of the Company’s common stock.
Under the 2019 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 2019 ESPP is for six months, which can be modified from time-to-time.
Subject to limitations, each participant will be permitted to purchase a number of shares determined by dividing the employee’s
accumulated payroll deductions for the offering period by the applicable purchase price, which is equal to 85 percent of
the fair market value of our common stock at the beginning or end of each offering period, whichever is less. A participant must
designate in his or her enrollment package the percentage (if any) of compensation to be deducted during that offering period
for the purchase of stock under the 2019 ESPP, subject to the statutory limit under the Code. As of June 30, 2019, 150,000 shares
were available for future grants under the 2019 ESPP.
The
2019 ESPP and 2018 ESPP are considered compensatory plans with the related compensation cost written off over the
six-month offering period. The compensation expense related to the 2019 ESPP for the six months ended June 30, 2019 and 2018
was $24,000 and $0, respectively. As of December 31, 2018, approximately $38,000 of employee payroll deductions, which have
been withheld since July 1, 2018, the commencement of the offering period ending December 31, 2018, are included in accrued
expenses in the accompanying balance sheet. In January 2019, 1,758 shares that were purchased as of December 31, 2018, were
issued under the 2018 ESPP, and approximately $3,000 of employee payroll deductions accumulated at December 31, 2018, related
to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $35,000 was
returned to the employees. As of June 30, 2019, approximately $45,000 of employee payroll deductions, which have been
withheld since January 1, 2019, the commencement of the offering period ending June 30, 2019, are included in accrued
expenses in the accompanying balance sheet. In August 2019, 23,792 shares that were purchased as of June 30, 2019, were
issued under the 2019 ESPP, and approximately $29,000 of employee payroll deductions accumulated at June 30, 2019, related to
acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining $16,000 will be
returned to the employees in Q3 2019.
Restricted
Stock Units
In
May 2017, a total of 563 RSUs vested that were granted to our non-employee directors for board services in 2016, in lieu of cash,
with a one-year vesting from the grant date and a fair value of $229 at the date of grant. 488 shares of the Company’s common
stock were issued upon the vesting of such RSU’s during the year ended December 31, 2017. The remaining 75 shares of common
stock were issued during the three months ended March 31, 2018.
During
the six months ended June 30, 2019 and 2018, no stock-based compensation expense related to RSU grants was expensed.
Commitments
Research
and development contracts
We
have entered into contracts with various contract research organizations with outstanding commitments aggregating approximately
$7.7 million at June 30, 2019 for future work to be performed.
Operating
leases
As
of June 30, 2019, future minimum lease payments are as follows (in thousands):
Year Ending December 31,
|
|
|
2019
|
|
|
$
|
228
|
|
2020
|
|
|
|
360
|
|
2021
|
|
|
|
6
|
|
|
|
|
$
|
594
|
|
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities
and expenses. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and
on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates.
We
believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation
of our consolidated financial statements.
Leases.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use
(“ROU”) assets, other current liabilities and operating lease liabilities 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 commencement date 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 also includes any lease payments made and 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 is recognized on a straight-line basis over the lease term.
Research
and Development
. We outsource our research and development efforts and expense the related costs as incurred, including the
cost of manufacturing product for testing, licensing fees and costs associated with planning and conducting clinical trials. The
value ascribed to patents and other intellectual property acquired was expensed as research and development costs, as it related
to particular research and development projects and had no alternative future uses.
We
estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations
under contracts with vendors, consultants and clinical research organizations and clinical site agreements in connection with
conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract
and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts.
We account for trial expenses according to the progress of the trial as measured by participant progression and the timing of
various aspects of the trial. We determine accrual estimates that take into account discussions with applicable personnel and
outside service providers as to the progress or state of completion of trials, or the services completed. During the course
of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates
of our accrued expenses as of each balance sheet date based on the facts and circumstances known to us at that time. Our clinical
trial accruals and prepaid assets are dependent upon the timely and accurate reporting of contract research organizations and
other third-party vendors.
Stock-Based
Compensation
. All stock-based payments to employees and to nonemployee directors for their services as directors consisted
of grants of restricted stock and stock options, which are measured at fair value on the grant date and recognized in the condensed
consolidated statements of operations as compensation expense over the relevant vesting period. Restricted stock payments to nonemployees
are recognized as an expense over the period of performance. Such payments are measured at fair value at the earlier of the date
a performance commitment is reached or the date performance is completed. In addition, for awards that vest immediately and are
nonforfeitable, the measurement date is the date the award is issued.
Recent
Accounting Pronouncements
In
February 2016, the FASB established ASC Topic 842, Leases (Topic 842), by issuing ASU No. 2016-02, which requires lessees to recognize
leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (ROU)
model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet. Leases will be classified as finance
or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.
We adopted the new standard on January 1, 2019.
The
new standard provides a number of optional practical expedients in transition. We have elected the ‘package of practical
expedients’, which permit us not to reassess under the new standard its prior conclusions about lease identification, lease
classification and
initial direct costs. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter
is not applicable to us.
The
new standard has had a material effect on our financial statements. The most significant effects of adoption relate to (1) the
recognition of new ROU assets and lease liabilities on its balance sheet for real estate operating leases; and (2) providing significant
new disclosures about its leasing activities.
The
new standard also provides practical expedients for an entity’s ongoing accounting. We elected the short-term lease recognition
exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities,
and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.
Beginning in 2019, we expect changes to our disclosed lease recognition policies and practices, as well as to other related financial
statement disclosures due to the adoption of this standard. The standard did not have a material impact on the Company’s
results of operations or liquidity.
Upon
adoption, we recognized operating lease liabilities of approximately $0.3 million based on the present value of the remaining
minimum rental payments under current leasing standards for existing operating leases. We recognized corresponding ROU assets
of approximately $0.3 million.
Off-Balance
Sheet Arrangements
Other
than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements
or liabilities, guarantee contracts, retain or contingent interests in transferred assets or any obligation arising out of a material
variable interest in an unconsolidated entity.