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
See the accompanying notes
to the condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 1 – BUSINESS
Tonix Pharmaceuticals Holding
Corp., through its wholly owned subsidiary Tonix Pharmaceuticals, Inc. (“Tonix Sub”), is a clinical-stage biopharmaceutical
company focused on discovering, licensing, acquiring and developing small molecules and biologics to treat and prevent human disease and
alleviate suffering. 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., Jenner LLC, Tonix Pharma Holdings Limited and Tonix Pharma Limited (collectively
hereafter referred to as the “Company” or “Tonix”). All intercompany balances and transactions have been eliminated
in consolidation.
Going Concern
The accompanying financial
statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization
of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has suffered recurring losses
from operations and negative cash flows from operating activities. At June 30, 2021, the Company had working capital of approximately
$169.2 million. At June 30, 2021, the Company had an accumulated deficit of approximately $311.7 million. The Company held unrestricted
cash and cash equivalents of approximately $165.7 million as of June 30, 2021.
The Company believes
that its cash resources at June 30, 2021, and the gross proceeds of approximately $8.4
million, that it raised from equity offerings subsequent to the end of the second quarter of 2021 (See Note 12), will meet
its operating and capital expenditure requirements through June 30, 2022, but not beyond.
These factors raise
substantial doubt about the Company’s ability to continue as a going concern. The Company continues to face significant challenges
and uncertainties and, as a result, its available capital resources may be consumed more rapidly than currently expected due to changes
it may make in its research and development spending plans. The Company has the ability to obtain additional funding through public and
private financing and collaborative arrangements with strategic partners to increase the funds available to fund operations. However,
the Company may not be able to raise capital with terms acceptable to the Company. Without additional funds, it may be forced to delay,
scale back or eliminate some of its research and development activities, or other operations and potentially delay product development
in an effort to provide sufficient funds to continue operations. If any of these events occurs, our ability to achieve our development
and commercialization goals would be adversely affected. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Interim financial statements
The unaudited condensed consolidated
interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.
The condensed consolidated
balance sheet as of December 31, 2020 contained herein has been derived from audited financial statements.
Operating results for the
three and six months ended June 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31,
2021. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K, filed with the Securities
and Exchange Commission (“SEC”) on March 15, 2021.
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 any of its product candidates 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 candidate will be approved or commercially viable. Moreover, the extent to which COVID-19 impacts the Company’s
operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
In December 2019, a novel
strain of Coronavirus (“COVID-19”) emerged that has caused significant disruptions to the U.S. and global economy. The spread
of COVID-19 has led to regional quarantines, business shutdowns, labor shortages, disruptions to supply chains, and overall economic
instability. Any of these events may in the future have a material adverse effect on our business, operations and financial condition.
The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the
actions taken to contain COVID-19 or treat its impact, among other things.
Use of estimates
The preparation of financial
statements in accordance with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates include the assumptions used in the fair value of stock-based compensation and other equity instruments,
and the percent of completion of research and development contracts.
Cash, Cash Equivalents and Restricted Cash
The Company considers cash
equivalents to be those investments which are highly liquid, readily convertible to cash and have an original maturity of three months
or less when purchased. At June 30, 2021 and December 31, 2020, cash equivalents, which consisted of money market funds, amounted to $100.4
million and $40.4 million, respectively. Restricted cash at both June 30, 2021 and December 31, 2020 of approximately $240,000 collateralizes
a letter of credit issued in connection with the lease of office space in Chatham, New Jersey and New York, New York (see Note 15).
The following table provides
a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the
total of the same amounts shown in the condensed consolidated statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
(in thousands)
|
|
Cash and cash equivalents
|
|
$
|
165,719
|
|
|
$
|
77,068
|
|
Restricted cash
|
|
|
240
|
|
|
|
240
|
|
Total
|
|
$
|
165,959
|
|
|
$
|
77,308
|
|
Property and equipment
Property and equipment are
stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the asset’s estimated
useful life, which is 20 years for buildings, three years for computer assets, five years for furniture and all other equipment and term
of lease for leasehold improvements. Depreciation and amortization expense for the three and six months ended June 30, 2021, was $7,000 and
$13,000, respectively, and $6,000 and $12,000, respectively, for the three and six months ended June 30, 2020. All property and equipment
are located in the United States and Ireland.
Intangible assets with indefinite lives
During the year ended December
31, 2015, the Company purchased certain internet domain rights, which were determined to have an indefinite life. Identifiable intangibles
with indefinite lives are not amortized but are tested for impairment annually or whenever events or changes in circumstances indicate
that their carrying amount may be less than fair value. As of June 30, 2021, the Company believed that no impairment existed.
Leases
The Company determines if
an arrangement is, or contains, a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets, operating lease liabilities, current and operating lease liabilities, noncurrent in the Company’s consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on
the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses
an incremental borrowing rate based on the information available at the transition date and subsequent lease commencement dates in determining
the present value of lease payments. This is the rate the Company would have to pay if borrowing on a collateralized basis over a similar
term to each lease. The operating lease ROU asset excludes lease incentives. The Company’s lease terms may include options to extend
or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments made
under operating leases is recognized on a straight-line basis over the lease term.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
Research and Development Costs
The Company outsources certain
of its research and development efforts and expenses these costs as incurred, including the cost of manufacturing products for testing,
as well as licensing fees and costs associated with planning and conducting clinical trials. The value ascribed to patents and other intellectual
property acquired has been expensed as research and development costs, as such property related to particular research and development
projects and had no alternative future uses.
The Company estimates its
expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical
site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which
vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided
under such contracts. The Company accounts for trial expenses according to the timing of various aspects of the trial. The Company determines
accrual estimates taking into account discussion with applicable personnel and outside service providers as to the progress or state of
consummation of trials, or the services completed.
During the course of a clinical
trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of
its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s
clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party
vendors.
Stock-based compensation
All stock-based payments to
employees and to nonemployees for their services, including grants of restricted stock units (“RSUs”), and stock options,
are measured at fair value on the grant date and recognized in the consolidated statements of operations as compensation or other expense
over the requisite service period. The Company accounts for share-based awards in accordance with the provisions of the Accounting Standards
Codification (“ASC”) 718, Compensation – Stock Compensation.
Foreign Currency Translation
Operations of the
Company’s Canadian subsidiary, Tonix Pharmaceuticals (Canada), Inc., are conducted in local currency, which represents its
functional currency. The U.S. dollar is the functional currency of the other foreign subsidiaries. Balance sheet accounts of
the Canadian subsidiary were translated from foreign currency into U.S. dollars at the exchange rate in effect at the balance sheet
date and income statement accounts were translated at the average rate of exchange prevailing during the period. Translation
adjustments resulting from this process were included in accumulated other comprehensive loss on the condensed consolidated balance
sheets.
Comprehensive Income (Loss)
Comprehensive income (loss) is
defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources.
It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Other
comprehensive income (loss) represents foreign currency translation adjustments.
Income Taxes
Deferred income tax assets
and liabilities are determined based on the estimated future tax effects of net operating loss and credit carryforwards and temporary
differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted
tax rates. The Company records a valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred
income tax assets will be realized.
The Company recognizes a tax
benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements
from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. As of June 30, 2021, the Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize
interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.
Per Share Data
The computation of basic and
diluted loss per share for the quarters ended June 30, 2021 and 2020 excludes potentially dilutive securities when their inclusion would
be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.
All warrants issued
participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of
Directors, on the Company’s common stock. For purposes of computing earnings per share (“EPS”), these warrants are
considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS
using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and
participating securities according to dividends declared and participation rights in undistributed earnings. No income was allocated
to the warrants for the three and six months ended June 30, 2021, and 2020, as results of operations were a loss for the periods.
Potentially dilutive securities excluded from the computation of basic and diluted net loss per share, as of June 30, 2021 and 2020, are as
follows:
|
|
2021
|
|
|
2020
|
|
Warrants to purchase common stock
|
|
|
644,906
|
|
|
|
5,184,210
|
|
Options to purchase common stock
|
|
|
24,972,546
|
|
|
|
10,209,286
|
|
Totals
|
|
|
25,617,452
|
|
|
|
15,393,496
|
|
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 3 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net
consisted of the following (in thousands):
|
|
June 30
|
|
|
December 31
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(in thousands)
|
|
Land
|
|
$
|
5,713
|
|
|
$
|
5,713
|
|
Construction in progress
|
|
|
4,700
|
|
|
|
2,800
|
|
Office furniture and equipment
|
|
|
419
|
|
|
|
385
|
|
Leasehold improvements
|
|
|
23
|
|
|
|
23
|
|
|
|
|
10,855
|
|
|
|
8,921
|
|
Less: Accumulated depreciation and amortization
|
|
|
(363
|
)
|
|
|
(350
|
)
|
|
|
$
|
10,492
|
|
|
$
|
8,571
|
|
On September 28, 2020,
the Company completed the purchase of its 4.0 million
square foot facility in Massachusetts for $4,000,000,
to house its new Advanced Development Center for the development and manufacturing of vaccines. Of the total purchase price, $1.2
million was allocated to the value of land acquired, and $2.8
million was allocated to construction in progress, as the building was not ready for its intended use. As of June 30, 2021,
the asset has not been placed in service.
On December 23, 2020,
the Company completed the purchase of its approximately 44-acre
site in Hamilton, Montana for $4.4
million, for the construction of a vaccine development and commercial scale manufacturing facility. As of June 30, 2021, the
asset has not been placed in service.
NOTE 4 – FAIR VALUE MEASUREMENTS
Fair value measurements affect
the Company’s accounting for certain of its financial assets. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and is measured
according to a hierarchy that includes:
|
Level 1:
|
Observable inputs, such as quoted prices in active markets.
|
|
Level 2:
|
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. Level 2 assets and liabilities include debt securities with quoted market prices that are traded less frequently than exchange-traded instruments. This category includes U.S. government agency-backed debt securities and corporate-debt securities.
|
|
Level 3:
|
Unobservable inputs in which there is little or no market data.
|
As of June 30, 2021, and December
31, 2020, the Company used Level 1 quoted prices in active markets to value cash equivalents of $100.4 million and $40.4 million, respectively.
The Company did not have any Level 2 or Level 3 assets or liabilities as of both June 30, 2021 and December 31, 2020.
NOTE 5 – STOCKHOLDERS’ EQUITY
On March 26, 2021, the Company
filed an amendment to its articles of incorporation, as amended, to increase the number of shares of common stock authorized from 400,000,000
to 800,000,000.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 6 – ASSET PURCHASE AGREEMENT WITH KATANA
On December 22, 2020,
the Company entered into an asset purchase agreement (the “Katana Asset Purchase Agreement”) with Katana
Pharmaceuticals, Inc. (“Katana”) pursuant to which Tonix acquired Katana assets related to insulin resistance and
related syndromes, including obesity (the “Katana Assets”). In connection with the acquisition of the Katana Assets,
Tonix assumed Katana’s rights and obligations under that certain Exclusive License Agreement by and between Katana and The
University of Geneva (“Geneva”) (the “Geneva License “Agreement”) pursuant to an Assignment and
Assumption Agreement with Geneva (“Geneva Assignment and Assumption Agreement”), dated December 22, 2020. As
consideration for entering into the Katana Asset Purchase Agreement, Tonix paid $0.7
million to Katana. The costs associated with the cash payments were recorded to research and development expenses in the
statement of operations for the year ended December 31, 2020. Because the Katana intellectual property was acquired prior to FDA
approval, the cash consideration totaling $0.7 million, was expensed as research and development costs since there is no alternative future use and the acquired intellectual
property does not constitute a business.
Pursuant to the terms of the
Geneva Assignment and Assumption Agreement, Geneva has granted to Tonix an exclusive license, with the right to sublicense, certain patents
related to the Katana Assets. Tonix is obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products
claimed or covered by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Geneva
License Agreement specifies developmental milestones and the period of time during which such milestones must be completed and provides
for an annual maintenance fee payable to Geneva.
As of June 30, 2021, no milestone
payments have been accrued or paid in relation to this agreement.
On June 11, 2020, the
Company entered into an asset purchase agreement (the “Trigemina Asset Purchase Agreement”) with Trigemina, Inc.
(“Trigemina”) and certain shareholders named therein (the “Executive Shareholders”) pursuant to which Tonix
acquired Trigemina assets related to migraine and pain treatment technologies (the “Trigemina Assets”). In connection
with the acquisition of the Trigemina Assets, Tonix assumed Trigemina’s rights and obligations under that certain Amended and
Restated Exclusive License Agreement, dated November 30, 2007, as amended, by and between Trigemina and The Board of Trustees of the
Leland Stanford Junior University (“Stanford”) (the “Stanford License “Agreement”) pursuant to an
Assignment and Assumption Agreement with Stanford (“Assignment and Assumption Agreement”), dated June 11, 2020. As
consideration for entering into the Asset Purchase Agreement, Tonix paid $824,759
to Trigemina and issued to Trigemina 2,000,000
shares of the Company’s common stock, valued at $0.68
per share, based on the closing stock price on June 11, 2020, and paid Stanford $250,241
pursuant to the terms of the Assignment and Assumption Agreement. The common stock is unregistered and subject to a 12-month lock-up
and a Shareholder Voting Agreement, dated June 11, 2020, pursuant to which Trigemina and the Executive Shareholders have agreed to
vote the common stock on any matter put to a vote of the shareholders of the Company in accordance with management’s
recommendations. Both the costs associated with the cash payments and share issuance, totaling $2.4 million, were recorded to research and development expenses in the statement of operations for the year ended December 31, 2020.
Because the Trigemina intellectual property was acquired prior to FDA approval, the cash and stock consideration, was expensed as
research and development costs since there is no alternative future use and the acquired intellectual property does not constitute a
business.
Pursuant to the terms of the
Assignment and Assumption Agreement, Stanford has granted to Tonix an exclusive license, with the right to sublicense, certain patents
related to the Trigemina Assets. Stanford has reserved for itself the right to practice under the patents for academic research and educational
purposes. Tonix is obligated to use commercially reasonable efforts to diligently develop, manufacture, and sell products claimed or covered
by the patent and will use commercially reasonable efforts to diligently develop markets for such products. The Trigemina License Agreement
specifies developmental milestones and the period of time during which such milestones must be completed and provides for an annual maintenance
fee payable to Stanford.
As of June 30, 2021, no milestone
payments have been accrued or paid in relation to this agreement.
NOTE 8 – ASSET PURCHASE AGREEMENT WITH TRIMARAN
On August 19, 2019, the
Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with TRImaran Pharma, Inc.
(“TRImaran”) and the selling shareholders named therein (the “Selling Shareholders”) pursuant to which Tonix
acquired TRImaran’s assets related to certain pyran-based compounds (the “Assets”). In connection with the
acquisition of the Assets, Tonix entered into a First Amended and Restated Exclusive License Agreement (the “WSU License
Agreement”) with Wayne State University (“WSU”) on August 19, 2019. As consideration for entering into the Asset
Purchase Agreement, Tonix paid $100,000
to TRImaran and has assumed certain liabilities of TRImaran totaling $68,500.
Upon the achievement of specified development, regulatory and sales milestones, Tonix also agreed to pay TRImaran and the Selling
Shareholders, in restricted stock or cash, at Tonix’s option, a total of approximately $3.4 million. Pursuant to the terms of the Asset Purchase Agreement, TRImaran and the Selling Shareholders are prohibited from disclosing
confidential information related to the Assets and are restricted from engaging, for a period of three years, in the development or
commercialization of any therapeutic containing any pyran-based drug compound for the treatment of post-traumatic stress disorder,
attention deficit hyperactivity disorder or major depressive disorder. Also for a period of three years, if TRImaran or any Selling
Shareholder engage in the research or development of any potential therapeutic compound for the treatment of any central nervous
system disorder, TRImaran or such Selling Shareholder is obliged to provide notice and opportunity to Tonix to make an offer to
acquire or license rights with respect to such product candidate.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
Pursuant to the terms of the
WSU License Agreement, WSU has granted to Tonix an exclusive license, with the right to sublicense, certain patents, technical information
and material (collectively, the “Technology”) related to the Assets. WSU has reserved for itself the right to practice the
Technology for academic research and educational purposes. Tonix is obligated to use commercially reasonable efforts to obtain regulatory
approval for one or more products utilizing the Technology (“WSU Products”) and to use commercially reasonable marketing efforts
throughout the term of the WSU License Agreement. The WSU License Agreement specifies developmental milestones and the period of time
during which such milestones must be completed and provides for an annual maintenance fee payable to WSU. Tonix is obligated to substantially
manufacture WSU Products in the United States if WSU Products will be sold in the United States.
Pursuant to the WSU
License Agreement, Tonix paid $75,000
to WSU as reimbursement of certain patent expenses, and, upon the achievement of specified development, regulatory and sales
milestones, the Company also agreed to pay WSU, milestone payments totaling approximately $3.4 million. Tonix has also agreed to pay WSU single-digit royalties on net sales of WSU Products sold by Tonix or a sublicensee on a
tiered basis based on net sales, and additional sublicense fees on certain consideration received from sublicensees. Royalties on
each particular WSU Product are payable on a country-by-country and Product-by-Product basis until the date of expiration of the
last valid claim in the last to expire of the issued patents covered by the WSU License Agreement. Royalties payable on net sales of
WSU Products may be reduced by 50%
of the royalties payable by Tonix to any third party for intellectual property rights which are necessary for the practice of the
rights licensed to Tonix under the WSU License Agreement, provided that the royalty payable on a WSU Product may not be reduced by
more than 50%.
Each party also has the right to terminate the agreement for customary reasons such as material breach and bankruptcy. The WSU
License Agreement contains provisions relating to termination, indemnification, confidentiality and other customary matters for an
agreement of this kind.
As of June 30, 2021, no milestone
payments have been accrued or paid in relation to this agreement.
NOTE
9 – LICENSE AGREEMENT WITH OYAGEN
On April 14, 2021, the Company
and OyaGen, Inc. (“OyaGen”) entered into an exclusive License Agreement (the “OyaGen License Agreement”) pursuant
to which OyaGen granted to Tonix an exclusive license to certain patents and technical information related to an antiviral inhibitor of
SARS-CoV-2, sangivamycin, and to develop and commercialize products thereunder, and to acquire rights to any technology based thereon
for the prevention or treatment of Covid-19 developed by OyaGen during the term of the License Agreement.
As consideration for
entering into the License Agreement, Tonix agreed to pay a low-seven digit license fee to OyaGen, and agreed to issue to OyaGen and
an affiliated entity an aggregate of 2,752,294
shares of the Company’s common stock, which are unregistered and subject to a six-month lock-up and a voting agreement,
pursuant to which OyaGen and the affiliated entity have agreed to vote the common stock on any matter put to a vote of the
shareholders of the Company in accordance with management’s recommendations. The shares were valued at $3.0
million, which was recorded as research and development expense. The OyaGen License also provides for single-digit royalties and
contingent milestone payments.
As of June 30, 2021, no milestone
payments have been accrued or paid in relation to this agreement
NOTE 10 – LICENSE AGREEMENT WITH INSERM
On February 11, 2021,
the Company entered into a license agreement (the “Inserm License Agreement”) pursuant to which it licensed technology
using oxytocin-based therapeutics for the treatment of Prader-Willi syndrome and non-organic failure to thrive disease from Inserm
(the French National Institute of Health and Medical Research), Aix-Marseille Université and Centre Hospitalier Universitaire
of Toulouse. The Inserm License Agreement provides for the payment of annual fees and milestone payments upon the occurrence of
specified sales milestones totaling approximately $0.4 million, as well royalties on net sales of products based on the licensed technology, and assignment/transfer and sublicense
royalties.
As of June 30, 2021, no milestone
payments have been accrued or paid in relation to this agreement
NOTE 11 – LICENSE AGREEMENTS WITH COLUMBIA UNIVERSITY
On September 16, 2019, the
Company entered into an exclusive License Agreement (the “Columbia License Agreement”) with the Trustees of Columbia University
in the City of New York (“Columbia”) pursuant to which Columbia granted to Tonix an exclusive license, with the right to sublicense,
certain patents and technical information (collectively, the “TFF2 Technology”) related to a recombinant Trefoil Family Factor
2 (TFF2), and to develop and commercialize products thereunder (each, a “TFF2 Product”). Pursuant to the terms of the Columbia
License Agreement, Columbia reserved for itself the right to practice the TFF2 Technology for academic research and educational purposes.
The Company paid a five-digit
license fee to Columbia as consideration for entering into the Columbia License Agreement, which was recorded to research and development
expenses in the statement of operations for the year ended December 31, 2019. The Company is obligated to use Commercially Reasonable
Efforts, as defined in the Columbia License Agreement, to develop and commercialize the TFF2 Product, and to achieve specified developmental
milestones.
The Company agreed to pay
Columbia single-digit royalties on net sales of (i) TFF2 Products sold by Tonix or a sublicensee and (ii) any other products that involve
material or technical information related to the TFF2 Product and transferred to Tonix pursuant to the Columbia License Agreement (“Other
Products”) sold by Tonix or a sublicensee. Royalties on each particular TFF2 Product are payable on a country-by-country and Product-by-Product
basis until the latest of (i) the date of expiration of the last valid claim in the last to expire of the issued patents covered by the
Columbia License Agreement, and (ii) a specified period of time after the first commercial sale of a TFF2 Product in the country in question.
Royalties on each particular Other Product are payable on a country-by-country and product-by-product basis until a specified period of
time after the first commercial sale of such particular Other Product in such country. Royalties payable on net sales of the TFF2 Product
and Other Products may be reduced by 50% of the royalties payable by Tonix to any third party for intellectual property rights which are
necessary for the practice of the rights licensed to Tonix under the Columbia License Agreement, provided that the royalty payable on
a Product or Other Product may not be reduced by more than 50%.
The Company is also obligated
to make contingent milestone payments to Columbia totaling $4.1 million on a Product-by-Product basis upon the achievement of certain
development, approval and sales milestones related to a TFF2 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, 2021, no milestone
payments have been accrued or paid in relation to this agreement.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
On May 20, 2019, the Company
entered into an exclusive License Agreement (the “License Agreement”) with 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 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, was paid during the second
quarter of 2020. Both installments of the license fee were recorded to research and development expenses in the 2019 statement of operations.
The Company 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, 2021, no milestone
payments have been accrued or paid in relation to this agreement.
NOTE
12 – SALE OF COMMON STOCK
2021 Lincoln Park Transaction
On
May 14, 2021, the Company entered into a purchase agreement (the “2021 Purchase Agreement”) and a registration rights agreement
(the “2021 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the
terms of the 2021 Purchase Agreement, Lincoln Park has agreed to purchase from the Company up to $80,000,000 of the Company’s common
stock (subject to certain limitations) from time to time during the term of the 2021 Purchase Agreement. Pursuant to the terms of the
2021 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 2021 Purchase Agreement.
Pursuant
to the terms of the 2021 Purchase Agreement, at the time the Company signed the 2021 Purchase Agreement and the 2021 Registration Rights
Agreement, the Company issued 1,280,000 shares of common stock to Lincoln Park as consideration
for its commitment to purchase shares of our common stock under the 2021 Purchase Agreement. The commitment shares were valued at $1.6 million
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 2021 Purchase Agreement.
During
the six months ended June 30, 2021, the Company sold an aggregate of approximately 2.8 million shares of common stock under the 2021 Purchase
Agreement, for gross proceeds of approximately $3.3 million.
February 2021 Financing
On February 8, 2021, the Company
entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale of 58,333,334 shares
of its common stock, in a registered direct public offering (“the February 2021 Financing”), with A.G.P/Alliance
Global Partners (“AGP”), acting as placement agent. The public offering price for each share of common stock was $1.20. The
February 2021 Financing closed on February 9, 2021. AGP received a cash fee of 7% of the gross proceeds, for an aggregate of $4.9 million.
The Company incurred other offering expenses of approximately $0.1 million. The Company received net proceeds of approximately $65.0 million,
after deducting the fees and other offering expenses.
January 2021 Financing
On January 11, 2021, the Company
entered into a securities purchase agreement with certain institutional investors relating to the issuance and sale of 50,000,000 shares
of its common stock in a registered direct public offering (“the January 2021 Financing”), with AGP as placement agent. The
public offering price for each share of common stock was $0.80. The January 2021 Financing closed on January 13, 2021. AGP received a
cash fee of 7% of the gross proceeds, for an aggregate of $2.8 million. The Company incurred other offering expenses of approximately
$0.3 million. The Company received net proceeds of approximately $36.9 million, after deducting the fees and other offering expenses.
At-the-Market Offerings
On April 8, 2020, the Company
entered into a sales agreement (the “Sales Agreement”) with AGP pursuant to which the Company may issue and sell, from time
to time, shares of the Company’s common stock having an aggregate offering price of up to $50.0 million in at-the-market offerings
(“ATM”) sales. On the same day, the Company filed a prospectus supplement under a shelf registration relating to the Sales
Agreement. AGP will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common
stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. On September 4, 2020, the
Company filed an amended prospectus supplement under the shelf registration relating to the Sales Agreement to increase the aggregate offering
price to $100.0 million in ATM sales under the Sales Agreement. On April 19, 2021, the Company filed an amended prospectus supplement
under the shelf registration relating to the Sales Agreement to increase the aggregate offering price to $170.0 million in ATM sales under
the Sales Agreement. During the six months ended June 30, 2021, the Company sold approximately 25.2 million shares of common stock under
the Sales Agreement, for gross proceeds of approximately $26.3 million. Subsequent to June 30, 2021, the Company has sold 11.0 million
shares of common stock under the Sales Agreement, for gross proceeds of approximately $8.4 million.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
March 2020 Financing
On February 28, 2020,
the Company entered into an underwriting agreement with AGP, relating to the issuance and sale of 14,550,000
shares of common stock, in a registered direct public offering (“the March 2020 Financing”). The public offering price
for each share of common stock was $1.10.
The March 2020 Financing closed on March 3, 2020. AGP purchased the shares at a seven percent discount to the then current public
price, for an aggregate discount of $1.1
million. The Company incurred other offering expenses of approximately $0.1
million. The Company received net proceeds of approximately $14.8 million, after deducting the underwriting discount and other offering expenses.
February 2020 Financing
On February 7, 2020, the Company
entered into an underwriting agreement with AGP pursuant to which the Company sold securities consisting of 3,837,000 Class A Units at
a public offering price of $0.57 per unit, with each unit consisting of one share of common stock and one warrant to purchase one share
of common stock, and 5,313 Class B Units at a public offering price of $1,000 per unit, with each unit consisting of one share of Series
B Convertible Preferred Stock, with a conversion price of $0.57 per share, convertible into 1,754.386 shares of common stock and warrants
to purchase 1,754.386 shares of common stock (“the February 2020 Financing”). The warrants have an exercise price of $0.57,
are immediately exercisable and expire five years from the date of issuance.
The February 2020 Financing
closed on February 11, 2020. AGP purchased the Class A and Class B Units at a seven-percent discount to the public offering price, for
an aggregate discount of approximately $0.5 million. The Company incurred other offering expenses of approximately $0.5 million. The Company
received net proceeds of approximately $6.5 million, after deducting the underwriting discount and other offering expenses.
After allocating proceeds
to the warrants issued with the Series B Convertible Preferred Stock, the effective conversion price of the Series B Convertible Preferred
Stock was determined to be less than the fair value of the underlying common stock at the date of commitment, resulting in a beneficial
conversion feature (“BCF”) at that date. Since the Series B Preferred Stock has no stated maturity or redemption date and
is immediately convertible at the option of the holder, the discount created by the BCF of $1.3 million, based on intrinsic value, was
charged to additional paid in capital as a non-cash “deemed dividend” and included in net loss to common stockholders.
During the first quarter of
2020, all 5,313 shares of Series B Convertible Preferred Stock were converted into common stock.
During February and March
2020, 10.8 million of the warrants issued in the February 2020 Financing, with an exercise price of $0.57, were exercised for proceeds
of approximately $6.2 million.
November 2019 Financing
On November 14, 2019,
the Company sold securities consisting of 547,420
Class A Units at a public offering price of $1.94
per unit, with each unit consisting of one share of common stock, one warrant to purchase one share of common stock (“primary
warrant”) and one-half of one warrant to purchase one half of one share common stock (“common warrant”), and 7,938
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 $1.94
per share, convertible into 515.464
shares of common stock, primary warrants to purchase 515.464
shares of common stock, and common warrants to purchase 257.732
shares of common stock (the “November 2019 Financing”). The primary warrants have an exercise price of $1.94,
are immediately exercisable and expire five
years from the date of issuance. The common warrants had an exercise price of $1.94 and expired 12
months from the date of issuance. The common warrants were exercisable on a cashless basis at the option
of the holder on the earlier of 30 days from issuance and the date by which an aggregate of $9.0 million of the Company’s securities
were traded.
As a result of the issuance
of common stock in February 2020 for less than the November 2019 warrant exercise price, a repricing of the warrants issued in the November
2019 Financing was triggered. The Company recognized a one-time non-cash “deemed dividend” of $0.5 million, representing the
increase in the fair value of the warrants. The non-cash “deemed dividend” was charged to additional paid in capital and included
in net loss to stockholders. During February and March 2020, 2.3 million of the warrants issued in the November 2019 financing, with an
exercise price of $0.57, were exercised for proceeds of approximately $1.3 million.
2019 Lincoln Park Transaction
On
August 20, 2019, the Company entered into a purchase agreement (the “2019 Purchase Agreement”) and a registration rights agreement
(the “2019 Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Pursuant to the
terms of the 2019 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 2019 Purchase Agreement. Pursuant to the terms of the 2019 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 2019 Purchase Agreement.
Pursuant
to the terms of the 2019 Purchase Agreement, at the time the Company signed the 2019 Purchase Agreement and the 2019 Registration Rights
Agreement, the Company issued 35,529 shares of common stock to Lincoln Park as consideration
for its commitment to purchase shares of our common stock under the 2019 Purchase Agreement. The commitment shares were valued at $200,000
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 2019 Purchase Agreement.
As
a result of receiving stockholder approval on January 16, 2020, the Company may sell more than 19.9% of it’s common stock outstanding
pursuant to the 2019 Purchase Agreement without violating Nasdaq Marketplace Rules, including Rule 5635(d), requiring shareholder
approval for the sale, issuance or potential issuance by an issuer of common stock (or securities convertible into or exercisable for
common stock) at a price less than the greater of book or market value.
During
the six months ended June 30, 2020, the Company sold an aggregate of approximately 464,471 shares of common stock under the 2019 Purchase
Agreement, for gross proceeds of approximately $0.3 million.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 13 – STOCK-BASED COMPENSATION
Stock Incentive Plans
On May 3, 2019, the Company’s
stockholders approved the Tonix Pharmaceuticals Holding Corp. 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan provided
for the issuance of up to 140,000 shares of common stock. With the adoption of the 2020 Plan (as defined below), no further grants may
be made under the 2019 Plan. On January 16, 2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holding Corp. 2020
Stock Incentive Plan (the “2020 Plan”). The 2020 Plan provided for the issuance of up to 600,000 shares of common stock. With
the adoption of the Amended and Restated 2020 Plan (as defined below), no further grants may be made under the 2020 Plan.
On May 1, 2020, the Company’s
stockholders approved the Tonix Pharmaceuticals Holding Corp. Amended and Restated 2020 Stock Incentive Plan (“Amended and Restated
2020 Plan”), and together with the 2020 Plan and the 2019 Plan, the “Plans”).
Under the terms of the Amended
and Restated 2020 Plan, the Company may issue (1) stock options (incentive and nonstatutory), (2) restricted stock, (3) stock appreciation rights (“SARs”), (4) RSUs,
(5) other stock-based awards, and (6) cash-based awards. The Amended and Restated 2020 Plan initially provided for the issuance of up
to 10,000,000 shares of common stock, which amount will be increased to the extent that awards granted under the Plans are forfeited,
expire or are settled for cash (except as otherwise provided in the Amended and Restated 2020 Plan). In addition, the Amended and Restated
2020 Plan contains an “evergreen provision” providing for an annual increase in the number of shares of our common stock available
for issuance under the Amended and Restated 2020 Plan on January 1 of each year for a period of ten years, commencing on January 1, 2021
and ending on (and including) January 1, 2030, in an amount equal to the difference between (x) twenty percent (20%) of the total number
of shares of common stock outstanding on December 31st of the preceding calendar year, and (y) the total number of shares of common stock
reserved under the Amended and Restated 2020 Plan on December 31st of such preceding calendar year (including shares subject to outstanding
awards, issued pursuant to awards or available for future awards). The Board of Directors determines the exercise price, vesting and expiration
period of the grants under the Amended and Restated 2020 Plan. However, the exercise price of an incentive stock option may not be less
than 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 Amended and Restated 2020
Plan may not be more than ten years. As of June 30, 2021, 16,894,483 shares were available for future grants under the Amended and Restated
2020 Plan.
General
A summary of the stock option activity and related
information for the Plans for the six months ended June 30, 2021 is as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining
Contractual Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2020
|
|
|
10,209,286
|
|
|
$
|
2.93
|
|
|
|
9.26
|
|
|
$
|
131,558
|
|
Grants
|
|
|
14,763,503
|
|
|
$
|
1.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Forfeitures or expirations
|
|
|
(243
|
)
|
|
|
2,937.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021
|
|
|
24,972,546
|
|
|
$
|
1.94
|
|
|
|
9.31
|
|
|
$
|
3,160,260
|
|
Exercisable at June 30, 2021
|
|
|
4,151,930
|
|
|
$
|
5.51
|
|
|
|
8.66
|
|
|
$
|
1,251,212
|
|
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 June 2021 was $0.96 per share and $1.08 per share, respectively. The weighted
average fair value of options granted during the three and six months ended June 2020 was $0.68 per share and $0.66 per share, respectively.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (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. The fair value of the award is measured on
the grant date. One-third of most stock options granted pursuant to the Plans vest 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. The Company also issues premium options to executive officers which have an exercise price greater than the grant
date fair value and has issued performance-based options which vest when target parameters are met or probable of being met, subject in
each case to a one year minimum service period prior to vesting. Stock-based compensation expense related to awards is amortized over
the applicable service period using the straight-line method.
The assumptions used in the
valuation of stock options granted during the six months ended June 30, 2021 and 2020 were as follows:
|
|
Six Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2020
|
|
Risk-free interest rate
|
|
|
0.80% to 1.63
|
%
|
|
|
0.36% to 1.25
|
%
|
Expected term of option
|
|
|
5.5 to 10 years
|
|
|
|
5.5 to 6 years
|
|
Expected stock price volatility
|
|
|
124.40% - 137.74
|
%
|
|
|
124.11% -130.00
|
%
|
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 $2.1 million, of which $1.5 million and $0.6 million, related to General and Administration and Research
and Development, respectively was recognized for the quarter ended June 30, 2021. Stock-based compensation expense relating to options
granted of $0.7 million, of which $0.5 million and $0.2 million, related to General and Administration and Research and Development, respectively
was recognized for the quarter ended June 30, 2020.
Stock-based compensation expense
relating to options granted of $3.3 million, of which $2.3 million and $1.0 million, related to General and Administration and Research
and Development, respectively was recognized for the six-month period ended June 30, 2021. Stock-based compensation expense relating to
options granted of $1.1 million, of which $0.8 million and $0.3 million, related to General and Administration and Research and Development,
respectively was recognized for the six-month period ended June 30, 2020.
As of June 30, 2021, the Company
had approximately $18.2 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 2.33 years.
Employee Stock Purchase Plans
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 2020 ESPP, as defined below, by the stockholders, no further grants may be made under the 2019 ESPP Plan. On May 1,
2020, the Company’s stockholders approved the Tonix Pharmaceuticals Holdings Corp. 2020 Employee Stock Purchase Plan (the “2020
ESPP”).
The 2020 ESPP allows eligible
employees to purchase up to an aggregate of 300,000 shares of the Company’s common stock. Under the 2020 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 2020 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 2020 ESPP, subject to the statutory limit
under the Code. As of June 30, 2021, 129,048 shares were available for future sales under the 2020 ESPP.
The 2020 and 2019 ESPP
are considered compensatory plans with the related compensation cost expensed over the six-month offering period. For the six months ended
June 30, 2021 and 2020, $47,000 and $0, respectively were expensed. In January 2020, 1,578 shares that were purchased as of December 31,
2019, under the 2019 ESPP, were issued. Accordingly, during the first quarter of 2020, approximately $2,000 of employee payroll deductions
accumulated at December 31, 2019, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital.
The remaining $7,000 was returned to the employees. As of December 31, 2020, approximately $32,000 of employee payroll deductions have
accumulated and have been recorded in accrued expenses. In January 2021, 54,447 shares that were purchased as of December 31, 2020, under
the 2020 ESPP, were issued. Accordingly, during the first quarter of 2021, approximately $28,000 of employee payroll deductions accumulated
at December 31, 2020, related to acquiring such shares, was transferred from accrued expenses to additional paid in capital. The remaining
$4,000 was returned to the employees. As of June 30, 2021, approximately $75,000 of employee payroll deductions have accumulated and have
been recorded in accrued expenses. In July 2021, 116,505 shares that were purchased as of June 30, 2021, under the 2020 ESPP, were issued.
Accordingly, during July 2021, approximately $68,000 of employee payroll deductions accumulated at June 30, 2021, related to acquiring
such shares, was transferred from accrued expenses to additional paid in capital. The remaining $7,000 was returned to the employees.
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 14 – STOCK WARRANTS
The following table summarizes
information with respect to outstanding warrants to purchase common stock of the Company at June 30, 2021:
Exercise
|
|
|
Number
|
|
|
Expiration
|
Price
|
|
|
Outstanding
|
|
|
Date
|
$
|
0.50
|
|
|
|
24,920
|
|
|
|
November 2024
|
$
|
0.57
|
|
|
|
123,500
|
|
|
|
February 2025
|
$
|
35.00
|
|
|
|
490,571
|
|
|
|
December 2023
|
$
|
630.00
|
|
|
|
5,441
|
|
|
|
October 2021
|
$
|
687.50
|
|
|
|
474
|
|
|
|
October 2021
|
|
|
|
|
|
644,906
|
|
|
|
|
During the six months June
30, 2021, 3,400 warrants from the February 2020 Financing, with an exercise price of $0.57, were exercised for proceeds of approximately
$2,000.
During the six months ended
June 30, 2020, 2.3 million warrants from the November 2019 financing, with an exercise price of $0.57, were exercised for proceeds of
approximately $1.3 million.
During the six months ended
June 30, 2020, 10.8 million warrants from the February 7th financing, with an exercise price of $0.57, were exercised for proceeds
of approximately $6.2 million.
NOTE 15 – 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, 2021, the Company has right-of-use assets
of $1.0 million and a total lease liability for operating leases of $1.1 million of which $0.6 million is included in long-term lease
liabilities and $0.5 million is included in current lease liabilities.
At June 30, 2021, 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 2021
|
|
|
$
|
285
|
|
2022
|
|
|
|
342
|
|
2023
|
|
|
|
158
|
|
2024
|
|
|
|
145
|
|
2025
|
|
|
|
149
|
|
|
|
|
|
1,079
|
|
Included interest
|
|
|
|
(24
|
)
|
|
|
|
$
|
1,055
|
|
During the six months ended
June 30, 2021, the Company entered into lease amendments, resulting in the Company recognizing an operating lease liability of approximately
$249,000 based on the present value of the future minimum rental payments. The Company also recognized corresponding ROU assets of approximately
$249,000.
During the six months
ended June 30, 2020, the Company entered into new operating leases and lease amendments, resulting in the Company recognizing an additional operating
lease liability of approximately $308,000
based on the present value of the minimum rental payments. The Company also recognized a corresponding increase to ROU assets of
approximately $308,000.
Operating lease expense was
$0.1 million for the three months ended June 30 for both reporting periods.
Operating lease expense
was $0.3 and $0.2 million
for the six-months ended June 30, 2021 and 2020, respectively.
Other information related to leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Six Months Ended
June 30, 2021
|
|
|
Six Months Ended
June 30, 2020
|
|
Operating cash flow from operating leases (in thousands)
|
|
$
|
314
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
3.13 years
|
|
|
|
1.43 years
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
1.36%
|
|
|
|
2.44%
|
|
TONIX PHARMACEUTICALS HOLDING CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021 AND 2020 (UNAUDITED)
NOTE 16 – COMMITMENTS
Contractual agreements
The Company has entered into
contracts with various contract research organizations with outstanding commitments aggregating approximately $39.1 million at June 30,
2021 for future work to be performed.
On July 26, 2021, the
Company entered into a $17.5
million contingent non-binding Purchase and Sales Agreement in connection with a property in Maryland. The property is
intended for process development activities. The purchase and sale is expected to close during the fourth quarter of
2021.
On March 3, 2021, the Company
entered into a $2.9 million contingent non-binding Purchase and Sales Agreement in connection with a property in Massachusetts. The property
is intended for process development activities. The purchase and sale is expected to close during the third quarter of
2021.
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 $41,000
and $111,000 for the three and six months ended June 30, 2021, respectively, and $29,000 and $79,000 for the three and six months ended
June 30, 2020, respectively, for contributions under the 401(k) Plan.
NOTE 17 – SUBSEQUENT EVENTS
On July 26, 2021, the Company entered into a $17.5 million contingent non-binding Purchase and Sales Agreement in connection with a property in Maryland. (See Note 16).
Subsequent to June 30, 2021,
the Company has sold 11.0 million shares of common stock under the ATM Sales Agreement, for gross proceeds of approximately $8.4 million.