See the accompanying notes to the condensed
consolidated financial statements
See the accompanying notes to the condensed
consolidated financial statements
See the accompanying notes to the condensed
consolidated financial statements
See the accompanying
notes to the condensed consolidated financial statements
See the accompanying
notes to the condensed consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
NOTE 1 – BUSINESS
Tonix Pharmaceuticals
Holding Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a clinical-stage biopharmaceutical
company focused on discovering and developing pharmaceutical products to treat serious neuropsychiatric conditions and to improve
biodefense through the development of 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 September 30, 2018, the Company had working
capital of approximately $13.5 million. At September 30, 2018, the Company had an accumulated deficit of approximately $180.9 million.
The Company held cash and cash equivalents of approximately $14.7 million as of September 30, 2018. The Company does not have enough
resources to meet its operating requirements through November 2019. 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
has the ability 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, 2017 contained herein has been derived from audited financial statements.
Operating results for
the three and nine months ended September 30, 2018 are not necessarily indicative of results that may be expected for the year
ending December 31, 2018. 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, 2017 included in the Company’s Annual Report on Form
10-K, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2018.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
Recent accounting pronouncements
In February 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases as
amended (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the
exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make
lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that
represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Public business
entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) must
apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements. The modified retrospective approach would not require any
transition accounting for leases that expired before the earliest comparative period presented. On January 1, 2019, the
Company can adopt on a modified retrospective basis with a cumulative adjustment. Lessees may not apply a full retrospective
transition approach. The Company understands that the adoption of ASU 2016-02, has the potential to materially impact its
balance sheet. Entities are also required to provide enhanced disclosure about leasing arrangements. The Company is
continuing to assess the amount of the asset and liability to record from adoption of ASU 2016-02 and will refine its
calculations to permit adoption on January 1, 2019.
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 equivalents and restricted cash
The Company considers
cash equivalents to be those investments which are highly liquid, readily convertible to cash and have an original maturity of
three months or less when purchased. At September 30, 2018 and December 31, 2017, cash equivalents, which consisted of money market
funds, amounted to $12.5 million and $17.3 million, respectively. Restricted cash at September 30, 2018 and December 31, 2017
of approximately $99,000 and $89,000, respectively, collateralizes a letter of credit issued in connection with the lease of office
space in New York City (see Note 8). During the fourth quarter of 2017, the Company adopted ASU 2016-18, “Statement of Cash
Flows (Topic 230): Restricted Cash” and have applied a retrospective approach. Certain balances have been reclassified on
the consolidated cash flow statement in accordance with this adoption.
The following table
provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum
to the total of the same amounts shown in the consolidated statement of cash flow:
|
|
September 30,
2018
|
|
|
December 31, 2017
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,674
|
|
|
$
|
25,496
|
|
Restricted cash
|
|
|
99
|
|
|
|
89
|
|
Total
|
|
$
|
14,773
|
|
|
$
|
25,585
|
|
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
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 nine months ended September 30, 2018 was $13,000 and $43,000, respectively, and $16,000 and $50,000, respectively, for
the three and nine months ended September 30, 2017. All property and equipment is located in the United States.
Intangible asset with indefinite lives
During the year ended
December 31, 2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life. Identifiable
intangibles with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances
indicate that its carrying amount may be less than fair value. As of September 30, 2018, the Company believed that no impairment
existed.
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 consolidated balance sheets.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
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. All other comprehensive
represents foreign currency translation adjustments.
Income taxes
Deferred income tax
assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards
and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured
at the current enacted tax rates. The Company records a valuation allowance on its deferred income tax assets if it is not more
likely than not that these deferred income tax assets will be realized.
The Company recognizes
a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination
by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. As of September 30, 2018, 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 March 17, 2017 (see Note
4).
As of September 30,
2018, and 2017, there were outstanding warrants to purchase an aggregate of 593,695 and 731,194 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 1,421,358 and 451,908 were outstanding at September 30, 2018 and 2017, respectively. In computing diluted
net loss per share for the three and nine months ended September 30, 2018 and 2017, no effect has been given to such options and
warrants 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 September 30,
2018, and December 31, 2017, the Company had Level 1 quoted prices in active markets of $12.5 million and $17.3 million, respectively,
consisting entirely of cash equivalents.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
NOTE 4 – STOCKHOLDERS’ EQUITY
On March 13, 2017, the Company
filed a Certificate of Change with the Nevada Secretary of State, which was effective March 17, 2017. 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 41,010,720 outstanding shares of the Company’s common stock were exchanged for 4,101,072 shares of the Company’s
common stock. In connection with the reverse stock split, the Company issued an additional 1,034 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 June 16, 2017, 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 to 150 million.
NOTE 5 – SALE OF COMMON STOCK
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
“2017 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 2017 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 2017 Registration Rights Agreement,
the Company issued 73,039 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 nine months ended
September 30, 2018, the Company sold 1.1 million shares of common stock under the 2017 Purchase Agreement, resulting in net proceeds
of $2.3 million, net of expenses of approximately $45,000.
Subsequent
to quarter-end, the Company sold an aggregate of 99,602 shares of common stock under the 2017 Purchase Agreement, resulting in
proceeds of approximately $58,000.
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 (1.5 million 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 ($4.5178 per share). As the Company has
issued 1.5 million shares to Lincoln Park 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.
At-the-market offering
On May 1, 2018, the Company
entered into a sales agreement (the “2018 Sales Agreement”) with Cowen and Company, LLC (“Cowen”), as sales
agent, pursuant to which the Company could have, from time to time, issued and sold common stock with an aggregate value of up
to $9.5 million in at-the-market (“ATM”) sales. On the same day, the Company filed a prospectus supplement under
its existing shelf registration relating to the 2018 Sales Agreement. Cowen acted as sole sales agent for any sales made under
the 2018 Sales Agreement for a 3% commission on gross proceeds. 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 nine months ended September 30, 2018, the Company
sold an aggregate of 1.6 million shares of common stock using the ATM, resulting in net proceeds of $4.1 million, net of expenses
of approximately $0.1 million of Cowen’s commission.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
Subsequent
to quarter-end, the Company sold an aggregate of 3.3 million shares of common stock resulting in net proceeds of approximately
$2.2 million, net of expenses of approximately $69,000 of Cowen’s commission.
April 2017 financing
On March 30, 2017, the Company
entered into an underwriting agreement with Aegis Capital Corp., as representative of the several underwriters (collectively, the
“2017 Underwriters”), relating to the issuance and sale of 1,800,000 shares of the Company’s common stock, in
an underwritten public offering (the “April 2017 Financing”). The public offering price for each share of common stock
was $4.45. The Company granted the 2017 Underwriters an option to purchase up to an additional 270,000 shares of common stock
to cover over-allotments, if any.
The April 2017 Financing closed
on April 4, 2017. The 2017 Underwriters purchased the shares at a seven percent discount to the public offering price, for an aggregate
discount of $0.6 million (or $0.31 per share). The Company also incurred offering expenses of approximately $0.2 million. The Company
received net proceeds of approximately $7.2 million. On April 13, 2017, the 2017 Underwriters fully exercised the over-allotment
option and purchased 270,000 shares of common stock for net proceeds of approximately $1.1 million, net of an aggregate discount
of $0.1 million (or $0.31 per share).
NOTE 6 – STOCK-BASED COMPENSATION
2017 Stock Incentive Plan
On June 16, 2017, the Company’s
stockholders approved the Tonix Pharmaceuticals Holding Corp. 2017 Stock Incentive Plan (the “2017 Plan” and together
with the 2012 Incentive Stock Option Plan, 2014 Incentive Stock Option Plan and the 2016 Stock Incentive Plan, the “Prior
Plans”). Under the terms of the 2017 Plan, the Company could have issued (1) stock options (incentive and nonstatutory),
(2) restricted stock, (3) SARs, (4) RSUs, (5) other stock-based awards, and (6) cash-based awards. The 2017 Plan provided for the
issuance of up to 1,280,000 shares of common stock. With the adoption of the 2018 Plan (as defined below), no further grants may
be made under the Prior Plans.
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” and together
with the Prior Plans, the “Plans”). As a result of adoption of the 2018 Plan by the stockholders, no further grants
may be made under the Prior Plans.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
Under the terms of the 2018
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 2018 Plan provides for the issuance of up to 1,320,000 shares of common stock,
which amount was (a) reduced by awards granted under the Prior Plans after March 1, 2018, and (b) will be increased to the
extent that awards granted under the Plans are forfeited, expire or are settled for cash (except as otherwise provided in the 2018
Plan). In terms of calculating how many shares are reduced or increased based on activity under the Prior Plans after March 1,
2018, the calculation shall be based on one share for every one share that was subject to an option or SAR and 1.23 shares for
every one share that was subject to an award other than an option or SAR. The Board of Directors determines the exercise price,
vesting and expiration period of the grants under the 2018 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 2018 Plan may not more than ten years. The Company reserved 1,320,000 shares of its common stock for future issuance under
the terms of the 2018 Plan. As of September 30, 2018, 1,135,000 shares were available for future grants under the 2018 Plan.
General
A summary of the stock option activity
and related information for the Plans for the nine months ended September 30, 2018 is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding at January 1, 2018
|
|
|
401,724
|
|
|
$
|
39.81
|
|
|
|
8.35
|
|
|
$
|
—
|
|
Grants
|
|
|
1,019,634
|
|
|
$
|
3.75
|
|
|
|
|
|
|
$
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures or expirations
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
|
1,421,358
|
|
|
$
|
13.94
|
|
|
|
8.45
|
|
|
$
|
—
|
|
Vested and expected to vest at September 30, 2018
|
|
|
1,421,358
|
|
|
$
|
13.94
|
|
|
|
8.45
|
|
|
$
|
—
|
|
Exercisable at September 30, 2018
|
|
|
391,492
|
|
|
$
|
37.82
|
|
|
|
6.11
|
|
|
$
|
—
|
|
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 nine months ended September 30, 2018 was $0.83 per share and $2.78 per share, respectively.
The weighted average fair value of options granted during the three and nine months ended September 30, 2017 was $2.78 per share
and $2.92 per share, respectively.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
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 nine months ended September 30, 2018 and 2017 were as follows:
|
|
Nine Months Ended
September 30, 2018
|
|
|
Nine Months Ended
September 30, 2017
|
|
Risk-free interest rate
|
|
|
2.54% to 2.81%
|
|
|
|
1.75% to 2.29%
|
|
Expected term of option
|
|
|
4.50 to 7.00 years
|
|
|
|
5.00 to 7.91 years
|
|
Expected stock price volatility
|
|
|
99.65% to 109.22%
|
|
|
|
76.61% to 77.59%
|
|
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 comparable companies’ historical stock price volatility since the Company
does not have sufficient historical exercise or volatility data because its equity shares have been publicly traded for only
a limited period of time.
Stock-based compensation expense
relating to options granted of $0.4 million and $1.2 million was recognized for the three and nine-month periods ended September
30, 2018, respectively, and $0.4 million and $1.4 million was recognized for the three and nine-month periods ended September 30,
2017, respectively.
As of September, 30, 2018,
the Company had approximately $2.3 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 2.02 years.
2014 Employee Stock Purchase Plan
On June 9, 2014, the Company’s
stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2014 Employee Stock Purchase Plan (the “2014 ESPP”).
As a result of adoption of the 2018 Plan by the stockholders, no further grants may be made under the 2014 ESPP.
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 2018 Plan by the stockholders, no further grants may be made under the Prior Plan.
The 2018 ESPP allows eligible
employees to purchase up to an aggregate of 300,000 shares of the Company’s common stock. Under the 2018 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 2018 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
2018 ESPP, subject to the statutory limit under the
Code. As of September 30, 2018, there were 300,000 shares available for future issuance under the 2018 ESPP.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
The 2018 ESPP and 2014 ESPP
are considered compensatory plans with the related compensation cost written off over the six-month offering period. The compensation
expense related to the 2018 ESPP for the nine months ended September 30, 2018 was $32,000. The compensation expense related to
the 2014 ESPP for the nine months ended September 30, 2017 was $36,000. As of September 30, 2018, approximately $31,000 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. No employee deductions were withheld for the period beginning
July 1, 2017.
Restricted stock units
In February 2017, a total of
5,625 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 $38.10 at the date of grant. 5,625 shares of the Company’s common stock were
issued upon the vesting of such RSUs during the three months ended March 31, 2017.
In May 2017, a total of 5,625
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 $22.90 at the date of grant. 4,875 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 750 shares of common stock were issued
during the three months ended March 31, 2018.
Stock-based compensation expense
related to RSU grants was $0 and $72,000 for the three and nine months ended September 30, 2017, respectively. There is no
stock-based compensation related to RSU’s in 2018.
NOTE 7 – STOCK WARRANTS
The following table summarizes
information with respect to outstanding warrants to purchase common stock of the Company at September 30, 2018:
|
|
|
|
|
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Expiration
Date
|
$
|
6.30
|
|
|
|
544,000
|
|
|
October
2021
|
$
|
6.90
|
|
|
|
47,361
|
|
|
October
2021
|
$
|
250.00
|
|
|
|
2,334
|
|
|
January
2019 to February 2019
|
|
|
|
|
|
593,695
|
|
|
|
During the nine months ended
September 30, 2018, 1,080 warrants with an exercise price of $120.00 and 91,898 warrants with an exercise price of $42.50 expired.
NOTE 8 – COMMITMENTS
Research and development contracts
The Company has entered into
contracts with various contract research organizations with outstanding commitments aggregating approximately $8.2 million at September
30, 2018 for future work to be performed.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018 AND 2017 (UNAUDITED)
Operating leases
As of September 30, 2018, future
minimum lease payments were as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
2018
|
|
|
$
|
115
|
|
2019
|
|
|
|
187
|
|
|
|
|
$
|
302
|
|
Defined contribution plan
The Company has a qualified
defined contribution plan (the “401(k) Plan”) pursuant to Section 401(k) of the Internal Revenue 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 six percent of each participant’s salary, on an annual basis, subject to limitations
under the Code. The Company charged operations $26,000 and $88,000 for the three and nine months ended September 30, 2018, respectively,
and $15,000 and $47,000 for the three and nine months ended September 30, 2017, respectively, for contributions under the 401(k)
Plan.
NOTE 9 – SUBSEQUENT EVENT
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. Pursuant to the terms of the 2018 Purchase Agreement, Lincoln Park has
agreed to purchase from the Company from time to time up to $15,000,000 of its common stock (subject to certain limitations) from
time to time during the term of the 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 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 350,000 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 $245,000.