ABEONA THERAPEUTICS INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share and per share amounts) June 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,133 $ 32,938 Short-term investments 13,963 12,086 Restricted cash 5,891 5,891 Accounts receivable 1,000 3,000 Other receivables 1,869 — Prepaid expenses and other current assets 1,440 2,377 Total current assets 30,296 56,292 Property and equipment, net 7,460 12,339 Right-of-use lease assets 6,943 9,403 Licensed technology, net — 1,384 Other assets 20 168 Total assets $ 44,719 $ 79,586 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,738 $ 4,325 Accrued expenses 5,331 5,585 Current portion of lease liability 1,798 1,818 Current portion of payable to licensor 4,818 4,599 Deferred revenue — 296 Total current liabilities 13,685 16,623 Payable to licensor 4,011 3,828 Other long-term liabilities 200 200 Long-term lease liabilities 6,737 7,560 Total liabilities 24,633 28,211 Commitments and contingencies Stockholders’ equity: Preferred stock - $ 0.01 par value; authorized 2,000,000 shares; No shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively — — Common stock - $ 0.01 par value; authorized 200,000,000 shares; 5,870,375 and 5,888,217 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 1,467 1,472 Additional paid-in capital 703,379 705,570 Accumulated deficit ( 684,726 ) ( 655,640 ) Accumulated other comprehensive loss ( 34 ) ( 27 ) Total stockholders’ equity 20,086 51,375 Total liabilities and stockholders’ equity $ 44,719 $ 79,586 The accompanying notes are an integral part of these unaudited condensed consolidated statements. 3 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (In thousands, except share and per share amounts) 2022 2021 2022 2021 For the three months ended June 30, For the six months ended June 30, 2022 2021 2022 2021 Revenues: License and other revenues $ 1,000 $ — $ 1,346 $ — Expenses: Royalties 350 — 350 — Research and development 6,658 8,533 17,203 16,868 General and administrative 3,460 5,182 7,684 11,444 Impairment of licensed technology — — 1,355 — Impairment of right-of-use lease asset — — 1,561 — Impairment of construction-in-progress ( 1,460 ) — 1,792 — Total expenses 9,008 13,715 29,945 28,312 Loss from operations ( 8,008 ) ( 13,715 ) ( 28,599 ) ( 28,312 ) Interest and other income 30 8 31 23 Interest expense ( 317 ) ( 1,500 ) ( 518 ) ( 2,920 ) Net loss $ ( 8,295 ) $ ( 15,207 ) $ ( 29,086 ) $ ( 31,209 ) Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock ( 3,782 ) — ( 3,782 ) — Net loss attributable to Common Shareholders $ ( 12,077 ) $ ( 15,207 ) $ ( 32,868 ) $ ( 31,209 ) Basic and diluted loss per common share $ ( 2.08 ) $ ( 3.93 ) $ ( 5.67 ) $ ( 8.18 ) Weighted average number of common shares outstanding – basic and diluted 5,806,473 3,864,791 5,800,822 3,817,380 Other comprehensive income (loss): Change in unrealized gains related to available-for-sale debt securities ( 4 ) ( 4 ) ( 7 ) 9 Comprehensive losses $ ( 12,081 ) $ ( 15,211 ) $ ( 32,875 ) $ ( 31,200 ) The accompanying notes are an integral part of these unaudited condensed consolidated statements. 4 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands, except share amounts) Shares Amount Shares Amount Shares Amount Capital Deficit Income/(Loss) Equity Three months ended June 30, 2022 Convertible Redeemable Preferred Stock Additional Accumulated Other Total Series A Series B Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Income/(Loss) Equity Balance at March 31, 2022 — $ — — $ — 5,883,196 $ 1,471 $ 706,433 $ ( 676,431 ) $ ( 30 ) $ 31,443 Stock-based compensation expense — — — — — — 724 — — 724 Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax witholding settlement — — — — ( 12,821 ) ( 4 ) 4 — — — Issuance of Series A and Series B Convertible Redeemable Preferred Stock, net of issuance costs 1,000,006 17,974 250,005 4,494 — — — — — — Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock — 3,026 — 756 — — ( 3,782 ) — — ( 3,782 ) Redemption of Series A and Series B Convertible Redeemable Preferred Stock ( 1,000,006 ) ( 21,000 ) ( 250,005 ) ( 5,250 ) — — — — — — Net loss — — — — — — — ( 8,295 ) — ( 8,295 ) Other comprehensive income (loss) — — — — — — — — ( 4 ) ( 4 ) Balance at June 30, 2022 — $ — — $ — 5,870,375 $ 1,467 $ 703,379 $ ( 684,726 ) $ ( 34 ) $ 20,086 Shares Amount Shares Amount Shares Amount Capital Deficit Income/(Loss) Equity Six months ended June 30, 2022 Convertible Redeemable Preferred Stock Additional Accumulated Other Total Series A Series B Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Income/(Loss) Equity Balance at December 31, 2021 — $ — — $ — 5,888,217 $ 1,472 $ 705,570 $ ( 655,640 ) $ ( 27 ) $ 51,375 Stock-based compensation expense — — — — — — 1,586 — — 1,586 Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax witholding settlement — — — — ( 17,842 ) ( 5 ) 5 — — — Issuance of Series A and Series B Convertible Redeemable Preferred Stock 1,000,006 17,974 250,005 4,494 — — — — — — Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock — 3,026 — 756 — — ( 3,782 ) — — ( 3,782 ) Redemption of Series A and Series B Convertible Redeemable Preferred Stock ( 1,000,006 ) ( 21,000 ) ( 250,005 ) ( 5,250 ) — — — — — — Net loss — — — — — — — ( 29,086 ) — ( 29,086 ) Other comprehensive income (loss) — — — — — — — — ( 7 ) ( 7 ) Balance at June 30, 2022 — $ — — $ — 5,870,375 $ 1,467 $ 703,379 $ ( 684,726 ) $ ( 34 ) $ 20,086 5 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity Continued (Unaudited) (In thousands, except share amounts) Shares Amount Capital Deficit Income/(Loss) Equity Three months ended June 30, 2021 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income/(Loss) Equity Balance at March 31, 2021 3,961,557 $ 990 $ 680,103 $ ( 586,706 ) $ 3 $ 94,390 Stock-based compensation expense — — 2,428 — — 2,428 Issuance of common stock under open market sale agreement 59,409 16 2,439 — — 2,455 Issuance of common stock in connection with the exercise of stock options 821 — 24 — — 24 Issuance of common stock in connection with restricted share awards, net of cancellations 28,254 7 ( 7 ) — — — Net loss — — — ( 15,207 ) — ( 15,207 ) Other comprehensive income (loss) — — — — ( 4 ) ( 4 ) Balance at June 30, 2021 4,050,041 $ 1,013 $ 684,987 $ ( 601,913 ) $ ( 1 ) $ 84,086 Shares Amount Capital Deficit Income/(Loss) Equity Six months ended June 30, 2021 Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders’ Shares Amount Capital Deficit Income/(Loss) Equity Balance at December 31, 2020 3,845,267 $ 961 $ 672,304 $ ( 570,704 ) $ ( 10 ) $ 102,551 Stock-based compensation expense — — 4,378 — — 4,378 Issuance of common stock under open market sale agreement 122,542 32 7,634 — — 7,666 Issuance of common stock in connection with the exercise of stock options 20,349 5 686 — — 691 Issuance of common stock in connection with restricted share awards, net of cancellations 61,883 15 ( 15 ) — — — Net loss — — — ( 31,209 ) — ( 31,209 ) Other comprehensive income (loss) — — — — 9 9 Balance at June 30, 2021 4,050,041 $ 1,013 $ 684,987 $ ( 601,913 ) $ ( 1 ) $ 84,086 The accompanying notes are an integral part of these unaudited condensed consolidated statements. 6 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) 2022 2021 For the six months ended June 30, 2022 2021 Cash flows from operating activities: Net loss $ ( 29,086 ) $ ( 31,209 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 1,584 1,641 Stock-based compensation expense 1,586 4,378 Non-cash impairment of licensed technology 1,355 — Non-cash impairment of right-of-use lease asset 1,561 — Non-cash impairment of construction-in-progress 1,792 — Accretion and interest on short-term investments ( 177 ) 266 Amortization of right-of-use lease assets 899 543 Non-cash interest 402 — Loss on disposal of property and equipment 106 — Change in operating assets and liabilities: Accounts receivable 2,000 — Other receivables ( 1,827 ) — Prepaid expenses and other current assets 937 1,387 Other assets 148 ( 22 ) Accounts payable, accrued expenses and lease liabilities ( 3,684 ) ( 4,977 ) Change in payable to licensor ( 296 ) 2,919 Net cash used in operating activities ( 22,700 ) ( 25,074 ) Cash flows from investing activities: Capital expenditures ( 103 ) ( 501 ) Proceeds from disposal of property and equipment 1,487 — Purchases of short-term investments ( 34,442 ) ( 15,164 ) Proceeds from maturities of short-term investments 32,735 46,965 Net cash (used in) provided by investing activities ( 323 ) 31,300 Cash flows from financing activities: Proceeds from open market sales of common stock — 7,666 Proceeds from exercise of stock options — 691 Proceeds from issuance of Series A and Series B Convertible Redeemable Preferred Stock, net of issuance costs 22,468 — Redemption of Series A and Series B Convertible Redeemable Preferred Stock ( 26,250 ) — Net cash (used in) provided by financing activities ( 3,782 ) 8,357 Net increase (decrease) in cash, cash equivalents and restricted cash ( 26,805 ) 14,583 Cash, cash equivalents and restricted cash at beginning of period 38,829 13,571 Cash, cash equivalents and restricted cash at end of period $ 12,024 $ 28,154 Supplemental cash flow information: Cash and cash equivalents $ 6,133 $ 27,179 Restricted cash 5,891 975 Total cash, cash equivalents and restricted cash $ 12,024 $ 28,154 The accompanying notes are an integral part of these unaudited condensed consolidated statements. 7 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1 – NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Background Abeona Therapeutics Inc. (together with the Company’s subsidiaries, “Abeona” or the “Company”), a Delaware corporation, is a clinical-stage biopharmaceutical company developing cell and gene therapies for life-threatening rare genetic diseases. The Company’s lead clinical program is EB-101, an autologous, gene-corrected cell therapy for recessive dystrophic epidermolysis bullosa (“RDEB”), which is currently in the pivotal Phase 3 VIITAL™ clinical trial. The Company’s development portfolio also features AAV-based gene therapies designed to treat ophthalmic and other diseases and next-generation AAV-based gene therapies using the novel AIM™ capsid platform that the Company has exclusively licensed from the University of North Carolina at Chapel Hill, and internal AAV vector research programs. Reverse Stock Split On June 30, 2022, the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Certificate of Amendment”), to effectuate a reverse stock split of the Company’s outstanding common stock, par value $ 0.01 per share (“Common Stock”), at an exchange ratio of 25-to-1 (the “Reverse Stock Split”) . The Reverse Stock Split was effective on July 1, 2022. The number of authorized shares of Common Stock immediately after the Reverse Stock Split (“New Common Stock”) remains at 200,000,000 shares. All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated. As a result of the Reverse Stock Split, every 25 shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted into one share of New Common Stock without any change in the par value per share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to a fraction of one share of New Common Stock as a result of the Reverse Stock Split instead received an amount in cash equal to such fraction multiplied by the closing sale price of Common Stock on the Nasdaq Capital Market on July 1, 2022, as adjusted for the Reverse Stock Split. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock and warrants outstanding at July 1, 2022, which resulted in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under the Company’s 2015 Equity Incentive Plan were reduced proportionately. Basis of Presentation The Company’s unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, except as otherwise disclosed, necessary for the fair presentation of the financial position, results of operations, and changes in financial position for such periods, have been made. These unaudited interim condensed consolidated financial statement results are not necessarily indicative of results to be expected for the full fiscal year or any future period. Certain information that is normally required by U.S. GAAP has been condensed or omitted in accordance with rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The December 31, 2021 condensed consolidated balance sheet was derived from the audited statements, but does not include all disclosures required by U.S. GAAP. Therefore, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 31, 2022. Uses and Sources of Liquidity The unaudited interim condensed consolidated financial statements have been prepared on the going concern basis, which assumes the Company will have sufficient cash to pay its operating expenses, as and when they become payable, for a period of at least 12 months from the date the financial report is issued. 8 As of June 30, 2022, the Company had cash, cash equivalents, restricted cash and short-term investments of $ 26.0 million. For the six months ended June 30, 2022, the Company had cash outflows from operations of $ 22.7 million. The Company has not generated significant revenues and has not achieved profitable operations. There is no assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and nonclinical testing, and commercialization of the Company’s product candidates will require significant additional financing. The Company is subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful discovery and development of product candidates, obtaining the necessary regulatory approval to market the Company’s product candidates, raising additional capital to continue to fund the Company’s operations, development of competing drugs and therapies, protection of proprietary technology and market acceptance of the Company’s products. As a result of these and other risks and the related uncertainties, there can be no assurance of the Company’s future success. The Company believes that its current cash and cash equivalents, restricted cash and short-term investments are only sufficient to fund its operating expenses into the second quarter of 2023. However, in order to further advance development and seek potential regulatory approval of the Company’s investigational EB-101 product for RDEB or to advance any of the Company’s preclinical AAV ophthalmology assets, the Company would need to secure additional funds through equity or debt offerings, potential upfront payments from potential commercial partners, potential sale of a priority review voucher, or other potential sources. The Company cannot be certain that additional funding will be available on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of these interim condensed consolidated financial statements. The interim condensed consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainty. Use of Estimates The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates and assumptions. Summary of Significant Accounting Policies There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 that are of significance, or potential significance, to the Company, other than the adoption of accounting pronouncements below. Reclassifications Certain comparative figures have been reclassified to conform to the current year presentation. The Company reclassified depreciation and amortization costs of $ 0.8 million and $ 16,000 to research and development and general and administrative expenses, respectively, on the condensed consolidated statements of operations and comprehensive loss during the three months ended June 30, 2021. The Company reclassified depreciation and amortization costs of $ 1.6 million and $ 32,000 to research and development and general and administrative expenses, respectively, on the condensed consolidated statements of operations and comprehensive loss during the six months ended June 30, 2021. The Company also reclassified certain rent expenses of $ 0.3 million and $ 0.6 million from general and administrative to research and development expenses on the condensed consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2021, respectively. Additionally, the Company also reclassified $ 5.0 million of restricted cash from prepaid expenses, other current assets and restricted cash and $ 0.9 million of restricted cash from other assets and restricted cash to restricted cash on the condensed consolidated balance sheets as of December 31, 2021. 9 Net Loss Per Share Basic and diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock. The Company does not include the potential impact of dilutive securities in diluted net loss per share, as the impact of these items is anti-dilutive. Potential dilutive securities result from outstanding restricted stock, stock options, and stock purchase warrants. The following table sets forth the potential securities that could potentially dilute basic income/(loss) per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the periods presented: SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 2022 2021 For the three and six months ended June 30, 2022 2021 Stock options 265,411 309,059 Restricted stock 61,108 128,725 Warrants 1,788,000 — Total 2,114,519 437,784 Recently Adopted Accounting Pronouncements In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for convertible instruments by eliminating the requirement to separately account for embedded conversion features as an equity component in certain circumstances. A convertible debt instrument will be reported as a single liability instrument with no separate accounting for an embedded conversion feature unless separate accounting is required for an embedded conversion feature as a derivative or under the substantial premium model. The ASU simplifies the diluted earnings per share calculation by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in diluted earnings per share calculations. Further, the ASU requires enhanced disclosures about convertible instruments. The Company adopted ASU 2020-06 as of January 1, 2022 and there was no material impact on the condensed consolidated financial statements upon adoption. NOTE 2 – SHORT-TERM INVESTMENTS The following table provides a summary of the short-term investments (in thousands): SCHEDULE OF AVAILABLE FOR SALE SHORT-TERM INVESTMENTS June 30, 2022 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Available-for-sale, short-term investments U.S. treasury securities $ 13,970 — ( 7 ) $ 13,963 Total available-for-sale, short-term investments $ 13,970 — ( 7 ) $ 13,963 December 31, 2021 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Available-for-sale, short-term investments U.S. treasury securities $ 12,077 9 — $ 12,086 Total available-for-sale, short-term investments $ 12,077 9 — $ 12,086 As of June 30, 2022, the available-for-sale securities classified as short-term investments mature in one year or less. Unrealized losses on available-for-sale securities as of June 30, 2022 were not significant and were primarily due to changes in interest rates, including market credit spreads, and not due to increased credit risks associated with specific securities. None of the short-term investments have been in a continuous unrealized loss position for more than 12 months. Accordingly, no other-than-temporary impairment was recorded for the three or six months ended June 30, 2022. There were no significant realized gains or losses recognized on the sale or maturity of available-for-sale investments for the three or six months ended June 30, 2022 or 2021. 10 NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment are stated at cost and depreciated or amortized using the straight-line method based on useful lives as follows (in thousands): SCHEDULE OF PROPERTY AND EQUIPMENT Useful lives (years) June 30, 2022 December 31, 2021 Laboratory equipment 5 $ 8,619 $ 9,081 Furniture, software and office equipment 3 to 5 1,909 1,896 Leasehold improvements Shorter of remaining lease term or useful life 8,603 8,603 Construction-in-progress — 3,219 Subtotal 19,131 22,799 Less: accumulated depreciation ( 11,671 ) ( 10,460 ) Total property and equipment, net $ 7,460 $ 12,339 Depreciation expense was $ 0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.6 million for the six months ended June 30, 2022 and 2021, respectively. During the three and six months ended June 30, 2022, the Company incurred a loss on disposal of equipment of $ 0.1 million which is reflected in general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. On March 31, 2022, the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the construction-in-progress that was dedicated to the ABO-101 and ABO-102 programs had no future value, and thus, the Company recorded an impairment charge of $ 3.3 million for the three months ended March 31, 2022. During the three months ended June 30, 2022, the Company received a $ 1.5 million refund from a vendor related to the proposed construction-in-progress and recorded a reduction of the impairment charge of $ 1.5 million. For the six months ended June 30, 2022, the net impairment charge recorded was $ 1.8 million. NOTE 4 – LICENSED TECHNOLOGY On May 15, 2015, the Company acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital to the AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B. The license is amortized over the life of the license of 20 years. On March 31, 2022, the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the remaining value of the licensed technology had no future value and thus, recorded an impairment charge of nil and $ 1.4 million for the three and six months ended June 30, 2022, respectively. The following table provides a summary of licensed technology (in thousands): SCHEDULE OF LICENSED TECHNOLOGY June 30, 2022 December 31, 2021 Licensed technology $ 2,156 $ 2,156 Less accumulated amortization ( 801 ) ( 772 ) Less impairment charge ( 1,355 ) — Total licensed technology, net $ — $ 1,384 Amortization expense on licensed technology was nil and $ 29,000 for the three months ended June 30, 2022 and 2021, respectively and $ 29,000 and $ 44,000 for the six months ended June 30, 2022 and 2021, respectively. NOTE 5 – SETTLEMENT LIABILITY On November 12, 2021, the Company entered into a settlement agreement (“Settlement Agreement”) with the Company’s prior licensor REGENXBIO Inc. (“REGENXBIO”) to resolve all existing disputes between the parties. In accordance with the Settlement Agreement, the Company agreed to pay REGENXBIO a total of $ 30.0 million, payable as follows: (1) $20.0 million paid in November 2021 after execution of the Settlement Agreement, (2) $5.0 million on the first anniversary of the effective date of the Settlement Agreement, and (3) $5.0 million upon the earlier of (i) the third anniversary of the effective date of the Settlement Agreement or (ii) the closing of a Strategic Transaction, as defined in the Settlement Agreement. 11 As of June 30, 2022, the Company recorded the payables due to REGENXBIO in the condensed consolidated balance sheets based on the present value of the remaining payments due to REGENXBIO under the Settlement Agreement using an interest rate of 9.6 %. The current portion of the payable due in November 2022 is $ 4.8 million and the long-term portion due in November 2024 is $ 4.0 million as of June 30, 2022. As of June 30, 2022, the Company recorded $ 5.0 million of restricted cash in the condensed consolidated balance sheet that serves as collateral for the payment owed to REGENXBIO in November 2022. NOTE 6 – FAIR VALUE MEASUREMENTS The Company calculates the fair value of the Company’s assets and liabilities that qualify as financial instruments and include additional information in the notes to the consolidated financial statements when the fair value is different than the carrying value of these financial instruments. The estimated fair value of accounts receivable, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses, payables to licensor and deferred revenue approximate their carrying amounts due to the relatively short maturity of these instruments. U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: ● Level 1 - Quoted prices in active markets for identical assets or liabilities. ● Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. ● Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs. The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The following table provides a summary of financial assets measured at fair value on a recurring and non-recurring basis as of June 30, 2022 and December 31, 2021 (in thousands): SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING AND NON-RECURRING BASIS Description Fair Value at June 30, 2022 Level 1 Level 2 Level 3 Recurring Assets: Cash equivalents Money market fund $ 2,860 $ 2,860 $ — $ — Short-term investments U.S. treasury securities 13,963 — 13,963 — Total assets measured at fair value $ 16,823 $ 2,860 $ 13,963 $ — Description Fair Value at December 31, 2021 Level 1 Level 2 Level 3 Recurring Assets: Cash equivalents Money market fund $ 28,590 $ 28,590 $ — $ — Short-term investments U.S. treasury securities 12,086 — 12,086 — Total recurring assets 40,676 28,590 12,086 — Non-recurring Assets Licensed technology, net $ 1,384 $ — $ — $ 1,384 Total assets measured at fair value $ 42,060 $ 28,590 $ 12,086 $ 1,384 12 NOTE 7 – ACCRUED EXPENSES The following table provides a summary of the components of accrued expenses (in thousands): SCHEDULE OF ACCRUED EXPENSES June 30, 2022 December 31, 2021 Accrued employee compensation $ 1,855 $ 1,794 Accrued contracted services and other 3,476 3,091 Accrued sublicense fee owed to licensor — 700 Total accrued expenses $ 5,331 $ 5,585 NOTE 8 – LEASES The Company leases space under operating leases for manufacturing and laboratory facilities in Cleveland, Ohio, as well as administrative offices in New York, New York. The Company also leases office space in Madrid, Spain as well as certain office equipment under operating leases, which have a non-cancelable lease term of less than one year and, therefore, the Company has elected the practical expedient to exclude these short-term leases from the Company’s right-of-use assets and lease liabilities. On March 31, 2022, the Company announced that they were pursuing a strategic partner to take over development activities of ABO-102 and that the Company was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the portion of the lease which was dedicated to the future facility for the ABO-101 and ABO-102 programs, had no future value and thus, the Company recorded an impairment charge of nil and $ 1.6 million for the three and six months ended June 30, 2022, respectively. The following table provides a summary of the components of lease costs and rent (in thousands): SCHEDULE OF COMPONENTS OF LEASE COST 2022 2021 2022 2021 For the three months ended June 30, For the six months ended June 30, 2022 2021 2022 2021 Operating lease cost $ 461 $ 434 $ 933 $ 868 Variable lease cost 116 104 212 239 Short-term lease cost 20 5 41 10 Total operating lease costs $ 597 $ 543 $ 1,186 $ 1,117 Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of June 30, 2022 are as follows: SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Maturity of lease liabilities: (in thousands) Remainder of 2022 $ 892 2023 1,835 2024 1,877 2025 1,547 2026 871 Thereafter 3,663 Total undiscounted operating lease payments 10,685 Less: imputed interest 2,150 Present value of operating lease liabilities $ 8,535 The weighted-average remaining term of the Company’s operating leases was 82 months and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 7.2 % as of June 30, 2022. 13 NOTE 9 – STOCK-BASED COMPENSATION The Company has two stock-based compensation plans: (1) Abeona Therapeutics Inc. 2015 Equity Incentive Plan (the “2015 Incentive Plan”), which was approved by stockholders on May 7, 2015 and last amended on May 20, 2020 and (2) Abeona Therapeutics Inc. 2005 Equity Incentive Plan (the “2005 Incentive Plan”), under which no further grants can be made. The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 (in thousands): SCHEDULE OF STOCK BASED COMPENSATION For the three months ended June 30, For the six months ended June 30 2022 2021 2022 2021 Research and development $ 540 $ 1,092 $ 556 $ 2,247 General and administrative 184 1,336 1,030 2,131 Total stock-based compensation expense $ 724 $ 2,428 $ 1,586 $ 4,378 Stock Options : The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option valuation model. The Company then recognize the grant date fair value of each option as compensation expense ratably using the straight-line attribution method over the service period (generally the vesting period). The Black-Scholes model incorporates the following assumptions: ● Expected volatility – the Company estimates the volatility of the share price at the date of grant using a “look-back” period which coincides with the expected term, defined below. The Company believes using a “look-back” period which coincides with the expected term is the most appropriate measure for determining expected volatility. ● Expected term – the Company estimates the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin No. 107, “Share-Based Payment.” ● Risk-free interest rate – the Company estimates the risk-free interest rate using the U.S. Treasury yield curve for periods equal to the expected term of the options in effect at the time of grant. ● Dividends – the Company uses an expected dividend yield of zero because there have been no declared or paid a cash dividend, nor are there any plans to declare a dividend. The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-valuation model utilizing the following assumptions: SCHEDULE OF WEIGHTED-AVERAGE ASSUMPTIONS TO ESTIMATE THE FAIR VALUE OF THE OPTIONS GRANTED For the six months ended June 30, 2022 2021 Expected volatility 95.1 % - 96.0 % 98.9 % - 99.8 % Expected term 6.07 - 6.08 years 5.25 - 6.08 years Risk-free interest rate 1.7 % - 3.3 % 0.9 % - 1.2 % Expected dividend yield — — The following table summarizes stock option activity for the 2015 Incentive Plan during the six months ended June 30, 2022: SCHEDULE OF STOCK OPTIONS ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 314,194 $ 38.48 7.63 $ — Granted 7,760 $ 5.30 — $ — Cancelled/forfeited ( 56,556 ) $ 35.31 — $ — Exercised — $ — — $ — Outstanding at June 30, 2022 265,398 $ 38.18 6.69 $ 5 Exercisable 148,066 $ 38.28 5.02 $ — Unvested 117,332 $ 38.05 8.81 $ 5 The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. As of June 30, 2022, the total compensation cost related to non-vested option awards not yet recognized was approximately $ 4.0 million with a weighted average remaining vesting period of 2.5 years. 14 The following table summarizes stock option activity for the 2005 Incentive Plan during the six months ended June 30, 2022: SCHEDULE OF STOCK OPTIONS ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 3,200 $ 32.00 1.80 $ — Cancelled/forfeited — $ — — $ — Exercised — $ — — $ — Outstanding at June 30, 2022 3,200 $ 32.00 1.29 $ — Exercisable 3,200 $ 32.00 1.29 $ — Unvested — $ — — $ — Restricted Stock: The following table summarizes restricted stock award activity during the six months ended June 30, 2022: SCHEDULE OF RESTRICTED STOCK AWARD ACTIVITY Number of Awards Weighted Average Grant Date Fair Value Outstanding at December 31, 2021 97,260 $ 46.59 Granted 12,680 $ 6.29 Cancelled/forfeited ( 27,161 ) $ 39.38 Vested ( 21,671 ) $ 53.07 Outstanding at June 30, 2022 61,108 $ 39.14 As of June 30, 2022, there was approximately $ 2.1 million of total unrecognized compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted average vesting period of 2.6 years. NOTE 10 – EQUITY Series A and B Convertible Redeemable Preferred Stock On May 2, 2022, the Company consummated an offering with certain institutional investors for the private placement of 1,000,006 shares of the Company’s Series A Convertible Redeemable Preferred Stock (the “Series A Preferred Stock”) and 250,005 shares of the Company’s Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”). The shares, which have since been redeemed in accordance with their terms described below, and are thus no longer outstanding as of June 30, 2022, had an aggregated stated value of $ 25.0 million. Each share of the Preferred Stock had a purchase price of $ 19.00 , representing an original issue discount of 5% of the stated value. In connection with this offering, the Company had net proceeds of $ 22.5 million and recognized a deemed dividend of $ 3.8 million. In connection with this transaction, the Company placed $ 26.3 million into an escrow account for any future redemption which consisted of the gross proceeds of $ 25.0 million and the redemption value of $ 1.3 million. The Preferred Stock was convertible, at the option of the holders and, in certain circumstances, by the Company, into shares of Common Stock at a conversion price of $ 11.25 per share. The holders of the Series A Preferred Stock and Series B Preferred Stock had the right to require the Company to redeem their shares of preferred stock for cash at 105% of the stated value of such shares commencing after the earlier of the receipt of stockholder approval of an amendment to the Company’s Restated Certificate of Incorporation to effect a reverse stock split and 60 days after the closing of the issuances of the Series A Preferred Stock and Series B Preferred Stock and until 90 days after such closing. The Company had the option to redeem the Series A Preferred Stock for cash at 105% of the stated value commencing after the 90th day following the closing of the issuance of the Series A Preferred Stock, subject to the holders’ rights to convert the shares prior to such redemption. As a result, the Preferred Stock was recorded separately from stockholders’ equity because it was redeemable upon the occurrence of redemption events that were considered not solely withing the Company’s control. As such, during the three months ended June 30, 2022, the Company recognized approximately $ 3.8 million in deemed dividends related to the Preferred Stock in the condensed consolidated statements of operations and comprehensive loss and the condensed consolidated statements of changes in stockholders’ equity. On June 17, 2022, the holders of all 1,000,006 shares of Series A Preferred Stock and 250,005 shares of Series B Preferred Stock exercised their right to cause the Company to redeem all such shares for $ 26.3 million, which represented a price equal to 105% of the stated value. The redemption of these shares was paid out of the escrow account noted above. 15 Common Stock and Warrants Reverse Stock Split Effective July 1, 2022, the Company’s stock underwent a 25:1 Reverse Stock Split. The number of authorized shares of Common Stock immediately after the Reverse Stock Split (“New Common Stock”) remained at 200,000,000 shares. Public Offerings On December 21, 2021, the Company closed an underwritten public offering of 1,788,000 post-split shares of common stock at a public offering price of $ 9.75 post-split per share and stock purchase warrants to purchase 1,788,000 post-split shares of common stock at an exercise price of $ 9.75 post-split. The net proceeds to the Company were approximately $ 16.0 million, after deducting $ 1.5 million of underwriting discounts and commissions and estimated offering expenses payable by the Company. As of June 30, 2022, there were 1,788,000 post-split stock purchase warrants outstanding. These stock purchase warrants expire on December 21, 2026. During such time as each warrant is outstanding, the holder of the warrant is entitled to participate in any dividends or other distribution of assets to holders of shares of common stock. There was no warrant activity during the three or six months ended June 30, 2022. NOTE 11 – LICENSE AGREEMENT On May 16, 2022, the Company and Ultragenyx Pharmaceutical Inc. (“Ultragenyx”) entered into an exclusive license agreement (the “License Agreement”) for AAV gene therapy ABO-102 for the treatment of Sanfilippo syndrome type A (MPS IIIA) (“ABO-102”). Under the License Agreement, Ultragenyx will assume responsibility for the ABO-102 program from the Company, with the exclusive right to develop, manufacture, and commercialize ABO-102 worldwide. Also pursuant to the License Agreement, following regulatory approval, the Company is eligible to receive tiered royalties from mid-single-digit up to 10% on net sales and up to $ 30.0 million in commercial milestone payments. Both forms of consideration comprise the transaction price to which the Company expects to be entitled in exchange for transferring the related intellectual property and certain, contractually-specified transition services to Ultragenyx. The sales-based royalty and milestone payments are subject to the royalty recognition constraint. As such, these fees are not recognized as revenue until the later of: (a) the occurrence of the subsequent sale, and (b) the performance obligation to which they relate has been satisfied. Additionally, pursuant to the License Agreement, Ultragenyx will reimburse the Company for certain development and transition costs actually incurred by the Company. These costs are passed through to Ultragenyx without mark-up. The Company has determined that these costs are not incurred for the purpose of satisfying any performance obligation under the License Agreement. Accordingly, the reimbursement of these costs is recognized as a reduction of research and development costs. Such amounts due to the Company from Ultragenyx under the License Agreement of $ 1.8 million are recorded as a component of other receivables in the condensed consolidated balance sheets as of June 30, 2022. 16