ABEONA THERAPEUTICS INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a- 15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective. 65 Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: ● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of management, including our principal executive and financial officers, we assessed our internal control over financial reporting as of December 31, 2022, based on criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management’s assessment of the effectiveness of our internal control over financial reporting included testing and evaluating the design and operating effectiveness of our internal controls. In our management’s opinion, we have maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in the COSO 2013 framework. Because we are a non-accelerated filer and smaller reporting company, Whitley Penn LLP, our independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting. Inherent Limitations of Internal Controls Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 66 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors and Executive Officers Directors and Reports of Beneficial Ownership . The information required by this Item is incorporated herein by reference from the information to be contained in our 2023 Proxy Statement to be filed with the SEC within 120 days after December 31, 2022 in connection with the solicitation of proxies for our 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”). Code of Ethics . We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to all of our employees (including executive officers) and directors. The Code is available on our website at www.abeonatherapeutics.com under the heading “Investors & Media—Corporate Governance—Governance—Governance Documents.” We intend to satisfy the disclosure requirement regarding any waiver of a provision of the Code applicable to any executive officer or director, by posting such information on such website. We shall provide to any person without charge, upon request, a copy of the Code. Any such request must be made in writing to Abeona Therapeutics Inc., c/o Investor Relations, 1330 Avenue of the Americas, 33 rd Floor, New York, NY 10019. Our corporate governance guidelines and the charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of the Board of Directors are available on our website at www.abeonatherapeutics.com under the heading “Investors & Media—Corporate Governance—Governance—Governance Documents.” We shall provide to any person without charge, upon request, a copy of any of the foregoing materials. Any such request must be made in writing to Abeona Therapeutics Inc., c/o Investor Relations, 1330 Avenue of the Americas, 33 rd Floor, New York, NY 10019. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is contained in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by this Item is contained in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information required by this Item is contained in the 2023 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this Item is contained in the 2023 Proxy Statement and is incorporated herein by reference. 67 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES a. Financial Statements. Page The following financial statements are submitted as part of this report: Report of Independent Registered Public Accounting Firm (PCAOB ID 726 ) F-1 Consolidated Balance Sheets at December 31, 2022 and 2021 F-2 Consolidated Statements of Operations and Comprehensive Loss for 2022 and 2021 F-3 Consolidated Statements of Stockholders’ Equity for 2022 and 2021 F-4 Consolidated Statements of Cash Flows for 2022 and 2021 F-5 Notes to Consolidated Financial Statements F-6 b. Exhibits Exhibit Index Exhibits: Description of Document 3.1 Restated Certificate of Incorporation of Abeona Therapeutics Inc. (incorporated by reference to Exhibit 3.1 of our Form 10-Q for the quarter ended March 31, 2019) 3.2 Certificate of Amendment to Restated Certificate of Incorporation of Abeona Therapeutics Inc. (incorporated by reference to Exhibit 3.1 of our Form 8-K filed on June 30, 2022) 3.3 Amended and Restated Bylaws of Abeona Therapeutics Inc. 3.4 Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of our Form 8-K filed on May 2, 2022). 3.5 Form of Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 of our Form 8-K filed on May 2, 2022). 4.1* 2015 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to our Form S-8 filed May 11, 2015) 4.2* 2015 Equity Incentive Plan Amendment (incorporated by reference to our Definitive Proxy Statement on Schedule 14A filed on April 4, 2016) 4.3 Description of Capital Stock of Abeona Therapeutics Inc. (incorporated by reference to Exhibit 4.4 of our Form 10-K for the year ended December 31, 2019) 10.1* 401(k) Plan (incorporated by reference to Exhibit 10.20 of our Form 10-K for the year ended December 31, 1999) 10.2* 2005 Equity Incentive Plan (incorporated by reference to Exhibit 1 of our Proxy Statement filed on April 18, 2005) 68 10.3 Director Designation Agreement dated November 15, 2007, between the Company and SCO Capital Partners LLC (incorporated by reference to Exhibit 10.26 of our Form S-1 filed on March 11, 2008) 10.4 Agreement and Plan of Merger, dated May 5, 2015, by and among the Company, PlasmaTech Merger Sub Inc., Abeona Therapeutics LLC and Paul A. Hawkins, in his capacity as Member Representative (incorporated by reference to Exhibit 10.1 to our Form 10-Q for the quarter ended June 30, 2015) 10.5 Form of Indemnification Agreement, between the Company and directors and officers of the Company (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on October 16, 2020) 10.6* Letter Agreement, dated October 6, 2021, between the Company and Vishwas Seshadri (incorporated by reference to Exhibit 10.6 of our Form 10-K for the year ended December 31, 2021) 10.7* Letter Agreement, dated September 16, 2021, between the Company and Brendan O’Malley (incorporated by reference to Exhibit 10.11 of our Form 10-K for the year ended December 31, 2021) 10.8* Letter Agreement, dated February 28, 2022, between the Company and Joseph Vazzano (incorporated by reference to Exhibit 10.1 of our Form 10-Q for the quarter ended March 31, 2022) 10.9 Open Market Sale Agreement, dated August 17, 2018, by and between the Company and Jefferies LLC (incorporated by reference to Exhibit 1.1 of Form 8-K filed on August 20, 2018) 10.10 Amendment No. 1 to Open Market Sale Agreement, dated November 19, 2021, amending the Open Market Agreement, by and between the Company and Jefferies LLC, dated August 17, 2018 (incorporated by reference to Exhibit 1.2 of Form 8-K filed on November 19, 2021) 10.11+ Settlement Agreement and Mutual Release, dated November 12, 2021, between the Company and REGENXBIO Inc. (incorporated by reference to Exhibit 10.14 of our Form 10-K for the year ended December 31, 2021) 10.12 Form of Securities Purchase Agreement between Abeona Therapeutics Inc. and the investors thereto, dated April 29, 2022 (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on May 2, 2022) 10.13 Form of Registration Rights Agreement by and among Abeona Therapeutics Inc. and the investors named therein, dated April 29, 2022 (incorporated by reference to Exhibit 10.2 of our Form 8-K filed on May 2, 2022) 10.14+ License Agreement by and between Abeona Therapeutics Inc. and Ultragenyx Pharmaceutical Inc., dated May 16, 2022 (incorporated by reference to Exhibit 10.3 of our Form 10-Q for the quarter ended June 30, 2022) 21 Subsidiaries of the registrant 23.1 Consent of Whitley Penn LLP 31.1 Principal Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 31.2 Principal Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) * Management contract or compensatory plan required to be filed as an exhibit to this report pursuant to Item 15(a)(3) of Form 10-K. + Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. ITEM 16. FORM 10-K SUMMARY None. 69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ABEONA THERAPEUTICS INC. Date: March 29, 2023 By: /s/ Vishwas Seshadri Vishwas Seshadri President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 29, 2023 /s/ Vishwas Seshadri Vishwas Seshadri President, Chief Executive Officer and Director (Principal Executive Officer) Date: March 29, 2023 /s/ Joseph Vazzano Joseph Vazzano Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 29, 2023 /s/ Leila Alland Leila Alland, Director Date: March 29, 2023 /s/ Mark J. Alvino Mark J. Alvino, Director Date: March 29, 2023 /s/ Michael Amoroso Michael Amoroso, Director Chairman of the Board Date: March 29, 2023 /s/ Faith L. Charles Faith L. Charles, Director Date: March 29, 2023 /s/ Paul Mann Paul Mann, Director Date: March 29, 2023 /s/ Christine Silverstein Christine Silverstein, Director Date: March 29, 2023 /s/ Todd Wider Todd Wider, Director Date: March 29, 2023 /s/ Donald A. Wuchterl Donald A. Wuchterl, Director 70 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Abeona Therapeutics Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Abeona Therapeutics Inc. and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ WHITLEY PENN LLP We have served as the Company’s auditor since 2006. Plano, Texas March 29, 2023 F- 1 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 14,217 $ 32,938 Short-term investments 37,932 12,086 Restricted cash 338 5,891 Accounts receivable — 3,000 Other receivables 188 — Prepaid expenses and other current assets 424 2,377 Total current assets 53,099 56,292 Property and equipment, net 5,741 12,339 Right-of-use lease assets 5,331 9,403 Licensed technology, net — 1,384 Other assets 43 168 Total assets $ 64,214 $ 79,586 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,811 $ 4,325 Accrued expenses 3,991 5,585 Current portion of lease liability 1,773 1,818 Current portion of payable to licensor — 4,599 Other current liabilities 204 296 Total current liabilities 7,779 16,623 Payable to licensor 4,163 3,828 Long-term lease liabilities 5,854 7,560 Warrant liabilities 19,657 9,007 Other long-term liabilities — 200 Total liabilities 37,453 37,218 Commitments and contingencies - Stockholders’ equity: Preferred stock - $ 0.01 par value; authorized 2,000,000 shares; No shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively — — Common stock - $ 0.01 par value; authorized 200,000,000 shares; 17,719,720 and 5,888,217 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 177 1,472 Additional paid-in capital 722,049 696,563 Accumulated deficit ( 695,336 ) ( 655,640 ) Accumulated other comprehensive loss ( 129 ) ( 27 ) Total stockholders’ equity 26,761 42,368 Total liabilities and stockholders’ equity $ 64,214 $ 79,586 The accompanying notes are an integral part of these consolidated statements. F- 2 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts) For the years ended December 31,   2022 2021 Revenues: License and other revenues $ 1,414 $ 3,000 Expenses: Royalties 450 — Research and development 28,965 38,726 General and administrative 17,256 21,644 Impairment of goodwill — 32,466 Impairment of licensed technology 1,355 — Impairment of right-of-use lease assets 2,511 — Impairment of construction-in-progress 1,792 — Total expenses 52,329 92,836 Loss from operations ( 50,915 ) ( 89,836 ) Gain on settlement with licensor — 6,743 PPP loan payable forgiveness income — 1,758 Interest income 431 40 Interest expense ( 736 ) ( 3,656 ) Change in fair value of warrant liabilities 11,383 — Other income 141 15 Net loss $ ( 39,696 ) $ ( 84,936 ) Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock ( 3,782 ) — Net loss attributable to Common Shareholders $ ( 43,478 ) $ ( 84,936 ) Basic and diluted loss per common share $ ( 5.53 ) $ ( 21.57 ) Weighted average number of common shares outstanding – basic and diluted 7,861,515 3,937,676 Other comprehensive income (loss): Change in unrealized gains (losses) related to available-for-sale debt securities ( 99 ) 9 Foreign currency translation adjustments ( 3 ) ( 26 ) Comprehensive loss $ ( 43,580 ) $ ( 84,953 ) The accompanying notes are an integral part of these consolidated statements. F- 3 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) 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 Loss Equity Balance at December 31, 2020 — $ — — $ — 3,845,267 $ 961 $ 672,304 $ ( 570,704 ) $ ( 10 ) $ 102,551 Stock-based compensation expense — — — — — — 8,916 — — 8,916 Issuance of common stock in connection with the exercise of stock options — — — — 25,227 6 825 — — 831 Issuance of common stock in connection with restricted share awards, net of cancellations — — — — 82,851 21 ( 21 ) — — — Issuance of common stock and stock purchase warrants in connection with public offering, net of offering costs and warrant liability — — — — 1,788,000 447 6,525 — — 6,972 Issuance of common stock, net of offering costs under open market sale agreement (ATM) — — — — 146,872 37 8,014 — — 8,051 Net loss — — — — — — — ( 84,936 ) — ( 84,936 ) Other comprehensive income — — — — — — — — ( 17 ) ( 17 ) Balance at December 31, 2021 — $ — — $ — 5,888,217 $ 1,472 $ 696,563 $ ( 655,640 ) $ ( 27 ) $ 42,368 Beginning balance — $ — — $ — 5,888,217 $ 1,472 $ 696,563 $ ( 655,640 ) $ ( 27 ) $ 42,368 Stock-based compensation expense — — — — — — 3,051 — — 3,051 Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax withholding settlement — — — — 742,608 2 ( 7 ) — — ( 5 ) Issuance of common stock and stock purchase warrants in connection with private placement offering, net of offering costs and warrant liability — — — — 7,609,879 76 12,012 — — 12,088 Issuance of common stock, net of offering costs under open market sale agreement (ATM) — — — — 3,479,016 35 12,804 — — 12,839 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 ) — — — — — — Reverse stock split adjustment — — — — — ( 1,408 ) 1,408 — — — Net loss — — — — — — — ( 39,696 ) — ( 39,696 ) Other comprehensive loss — — — — — — — — ( 102 ) ( 102 ) Balance at December 31, 2022 — $ — — $ — 17,719,720 $ 177 $ 722,049 $ ( 695,336 ) $ ( 129 ) $ 26,761 Ending Balance — $ — — $ — 17,719,720 $ 177 $ 722,049 $ ( 695,336 ) $ ( 129 ) $ 26,761 The accompanying notes are an integral part of these consolidated statements. F- 4 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) For the years ended December 31, 2022  2021 Cash flows from operating activities: Net loss $ ( 39,696 ) $ ( 84,936 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 3,093 3,250 Stock-based compensation expense 3,051 8,916 Non-cash gain on settlement with licensor — ( 6,743 ) Non-cash PPP loan payable forgiveness income — ( 1,758 ) Non-cash impairment of goodwill — 32,466 Change in fair value of warrant liabilities ( 11,383 ) — Non-cash impairment of licensed technology 1,355 — Non-cash impairment of right-of-use lease assets 2,511 — Non-cash impairment of construction-in-progress 1,792 — Accretion and interest on short-term investments ( 380 ) 122 Amortization of right-of-use lease assets 1,484 1,214 Non-cash interest 736 67 Loss on disposal of property and equipment 138 — Gain on lease termination ( 292 ) — Change in operating assets and liabilities: Accounts receivable 3,000 ( 3,000 ) Other receivables ( 188 ) — Prepaid expenses and other current assets 1,953 331 Other assets 125 ( 7 ) Accounts payable, accrued expenses and lease liabilities ( 5,490 ) 825 Deferred revenue ( 292 ) — Change in payable to licensor ( 5,000 ) ( 16,412 ) Net cash used in operating activities ( 43,483 ) ( 65,665 ) Cash flows from investing activities: Capital expenditures ( 130 ) ( 4,151 ) Proceeds from disposal of property and equipment 1,734 — Purchases of short-term investments ( 78,212 ) ( 20,163 ) Proceeds from maturities of short-term investments 52,644 90,376 Net cash (used in) provided by investing activities ( 23,964 ) 66,062 Cash flows from financing activities: Proceeds from ATM sales of common stock, net of issuance costs 12,839 8,051 Proceeds from issuance of common stock and warrants in public offering, net of issuance costs — 15,979 Proceeds from issuance of common stock and warrants in private offering, net of issuance costs 34,121 — Proceeds from exercise of stock options and net settlement of restricted share awards ( 5 ) 831 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 provided by financing activities 43,173 24,861 Net (decrease)increase in cash, cash equivalents and restricted cash ( 24,274 ) 25,258 Cash, cash equivalents and restricted cash at beginning of year 38,829 13,571 Cash, cash equivalents and restricted cash at end of year $ 14,555 $ 38,829 Supplemental cash flow information: Cash and cash equivalents $ 14,217 $ 32,938 Restricted cash 338 5,891 Total cash, cash equivalents and restricted cash $ 14,555 $ 38,829 Supplemental non-cash flow information: Additions (deletions) to right-of-use lease assets obtained from new operating lease liabilities resulting from modification of original lease arrangement $ ( 77 ) $ 3,585 Deletions to operating lease liabilities obtained from new operating lease liabilities resulting from modification of original lease arrangement ( 369 ) — The accompanying notes are an integral part of these consolidated statements. F- 5 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF 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 diseases. The Company’s lead clinical program is EB-101, an autologous, engineered cell therapy currently in development for recessive dystrophic epidermolysis bullosa (“RDEB”). The Company’s development portfolio also features AAV-based gene therapies designed to treat high unmet medical need ophthalmic diseases 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. Uses and Sources of Liquidity The 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. As of December 31, 2022, the Company had cash, cash equivalents, restricted cash and short-term investments of $ 52.5 million. For the year ended December 31, 2022, the Company had cash outflows from operations of $ 43.5 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 and protection of proprietary technology. As a result of these and other risks and the related uncertainties, there can be no assurance of the Company’s future success. F- 6 The Company believes that its current cash and cash equivalents, restricted cash and short-term investments are sufficient resources to fund operations through at least the next 12 months from the date of this report on Form 10-K. The Company may need to secure additional funding to carry out all of its planned research and development activities. If the Company is unable to obtain additional financing or generate license or product revenue, the lack of liquidity and sufficient capital resources could have a material adverse effect on its future prospects. Summary of Significant Accounting Policies A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements include the financial statements of Abeona Therapeutics Inc. and the Company’s wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates and assumptions. Reclassifications Certain comparative figures have been reclassified to conform to the current year presentation. The Company reclassified depreciation and amortization costs of $ 3.2 million and $ 0.1 million to research and development and general and administrative expenses, respectively, on the consolidated statements of operations and comprehensive loss during the year ended December 31, 2021. The Company also reclassified certain rent expenses of $ 1.2 million from general and administrative to research and development expenses on the consolidated statements of operations and comprehensive loss during the year ended December 31, 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 consolidated balance sheets as of December 31, 2021. Correction of Error During 2022, the Company identified errors in the accounting for certain common stock warrants that were issued in 2021. The common stock warrants were not indexed to the Company’s own stock and therefore should have been classified as liabilities at their estimated fair value instead of additional paid-in capital. Although the errors were immaterial to prior periods, the 2021 financial statements are restated below in accordance with Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, due to the significance of the out-of-period correction to the 2021 period. There was no impact to the Company’s consolidated statements of operations and comprehensive loss. The Company evaluated the materiality of these errors on both a quantitative and qualitative basis under the guidance of ASC 250, “Accounting Changes and Errors Corrections,” and determined that it did not have a material impact on previously issued financial statements. A reconciliation of the effects of the restatement to amounts in the previously reported consolidated financial statements for the year ended December 31, 2021 are as follows (in thousands): SCHEDULE OF EFFECTS OF THE RESTATEMENT TO AMOUNTS IN THE PREVIOUSLY REPORTED CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2021 Consolidated Balance Sheet As Reported Adjustment As Revised Total assets $ 79,586 $ — $ 79,586 Total liabilities 28,211 9,007 37,218 Total stockholders’ equity 51,375 ( 9,007 ) 42,368 Accumulated deficit ( 655,640 ) — ( 655,640 ) As of December 31, 2021 Consolidated Statement of Stockholders’ Equity As Reported Adjustment As Revised Additional paid-in capital, December 31, 2021 $ 705,570 $ ( 9,007 ) $ 696,563 Total stockholders’ equity, December 31, 2021 51,375 ( 9,007 ) 42,368 F- 7 Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits. Restricted Cash Restricted cash serves as collateral for office space. Short-term Investments Short-term investments consist of investments in U.S. government, U.S. agency and U.S. treasury securities. The Company determines the appropriate classification of the securities at the time they are acquired and evaluate the appropriateness of such classifications at each balance sheet date. The Company classifies its short-term investments as available-for-sale pursuant to Accounting Standards Codification (“ASC”) 320, Investments – Debt and Equity Securities . Investments classified as current have maturities of less than one year. The Company reviews its short-term investments for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a short-term investment’s carrying amount is not recoverable within a reasonable period of time. Property and Equipment Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over estimated useful lives ranging from three to seven years. Leasehold improvements are amortized over the shorter of the asset’s useful life or the life of the lease term ranging from five to ten years. Expenditures for major renewals and betterments that extend the useful lives are capitalized. Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold or abandoned, and the related accumulated depreciation are eliminated from the accounts and any gains or losses are recognized in the accompanying consolidated statements of operations of the respective period. Leases The Company accounts for leases in accordance with ASC 842, Leases . Right-of-use lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The right-of-use asset is based on the measurement of the lease liability and includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. The Company does not have any leases classified as finance leases. The Company’s leases do not have significant rent escalation, holidays, concessions, material residual value guarantees, material restrictive covenants or contingent rent provisions. The Company’s leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs), which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Most leases include one or more options to renew. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and lease liabilities as they are not reasonably certain of exercise. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Licensed Technology The Company has entered into agreements to license the rights to certain technologies. The Company records the purchase price paid for the license, which represents fair value, on its consolidated balance sheet. Licensed technology is amortized over the life of the patent or the agreement. The Company maintain licensed technology on its consolidated balance sheet until either the licensed technology agreement underlying it is completed or the asset becomes impaired. When the Company determine that an asset has become impaired, as discussed below, or the Company abandons a project, the Company writes down the carrying value of the related intangible asset to its fair value and recognizes an impairment charge in the period in which the impairment occurs. Impairment of Long-Lived Assets Long-lived assets consist of property and equipment, licensed technology, and right-of-use assets. The Company tests its long-lived assets for impairment when events and circumstances indicate that the carrying value of an asset or group of assets may not be fully recoverable. If indicators are present or changes in circumstance suggest that impairment may exist, the Company assesses the recoverability of the affected long-lived assets or group of assets by determining whether the carrying value of such assets or group of assets can be recovered through undiscounted future operating cash flows. If the carrying amount is not recoverable, the Company measures the amount of any impairment by comparing the carrying value of the asset or group of assets to its fair value. F- 8 Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment loss, if any, is recognized based on a comparison of the fair value of the asset to its carrying value, without consideration of any recoverability. The Company tests goodwill for impairment annually during the fourth quarter and whenever indicators of impairment exist by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If the Company concludes it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is performed. If the Company concludes that goodwill is impaired, it will record an impairment charge in its consolidated statement of operations and comprehensive loss. Segments The Company operates in a single segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purpose of allocating resources. Revenue Recognition The Company accounts for contracts with customers in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Research and Development Expenses Research and development costs are expensed as incurred. Research and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical and development cost, clinical trial expense, manufacturing, regulatory, and consulting. The cost of materials and equipment or facilities that are acquired for research and development activities and that have alternative future uses are capitalized when acquired. General and Administrative Expenses General and administrative expenses primarily consist of personnel, contract personnel, personnel-related expenses to support the Company’s administrative and operating activities, facility costs and professional expenses (i.e., legal expenses) and investor relations fees. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets to the extent their realization is in doubt. The Company accounts for uncertain income tax positions in accordance with ASC 740, Income Taxes . Interest costs and penalties related to income taxes are classified as interest expense and general and administrative costs, respectively, in the consolidated financial statements. For 2022 and 2021, the Company did not recognize any uncertain tax positions, interest or penalty expense related to income taxes. It is not reasonably likely for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months. The Company files U.S. federal and state income tax returns as necessary. The federal return generally has a three-year statute of limitations and most states have a four-year statute of limitations; however, the taxing authorities are allowed to review the tax year in which the net operating loss was generated when the loss is utilized on a tax return. The Company currently does not have any open income tax audits. F- 9 Net Loss Per Share Basic and diluted net loss per share is computed by dividing net loss attributable to common shareholders 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 ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE For the year ended December 31, 2022 2021 Stock options 240,770 317,394 Restricted stock 816,958 97,261 Warrants 9,397,879 1,788,000 Total 10,455,607 2,202,655 Stock-Based Compensation The Company accounts for stock-based compensation expense in accordance with ASC 718, Stock Based Compensation . The Company measures the cost of the employee/director/consultant services received in exchange for an award of equity instruments based on the grant date fair value for the employees and directors and vesting date fair value for consultants of the award. The Company uses the Black-Scholes option pricing model to determine the fair value of options on the grant date which includes assumptions for expected volatility, risk-free interest rate, dividend yield and estimated expected term. The Company uses the closing price of its common stock as quoted on the Nasdaq to determine the fair value of restricted stock. The Company accounts for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise. Warrants On November 3, 2022, the Company issued warrants to purchase 7,609,879 shares of common stock, with an exercise price of $ 4.75 per share, subject to customary adjustments thereunder. On December 17, 2021, the Company issued warrants to purchase 1,788,000 shares of common stock, with an exercise price of $ 9.75 (post-split) per share, subject to customary adjustments thereunder. The warrants issued in 2022 and 2021 were determined to be freestanding instruments as they are legally detachable and separately exercisable from each other and from the common stock issued. The common stock warrants are accounted for as liabilities on the consolidated balance sheets at their estimated fair value because they are not indexed to the Company’s own stock. The warrants are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded in the consolidated statements of operations and comprehensive loss. 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 consolidated financial statements upon adoption. F- 10 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 December 31, 2022 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Available-for-sale, short-term investments: U.S. treasury and federal agency securities $ 38,032 — ( 100 ) $ 37,932 Total available-for-sale, short-term investments $ 38,032 — ( 100 ) $ 37,932 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 December 31, 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 December 31, 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 year ended December 31, 2022. There were no significant realized gains or losses recognized on the sale or maturity of available-for-sale investments during the years ended December 31, 2022 or 2021. NOTE 3 – PROPERTY AND EQUIPMENT 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 As of December 31, Useful lives (years) 2022 2021 Laboratory equipment 5 $ 7,636 $ 9,081 Furniture, software and office equipment 3 to 5 1,379 1,896 Leasehold improvements Shorter of remaining lease term or useful life 8,605 8,603 Construction-in-progress — 3,219 Subtotal 17,620 22,799 Less: accumulated depreciation ( 11,879 ) ( 10,460 ) Total property and equipment, net $ 5,741 $ 12,339 Depreciation and amortization on property and equipment was $ 3.1 million and $ 3.3 million for 2022 and 2021, respectively. During the year ended December 31, 2022, the Company incurred a loss on disposal of equipment of $ 0.1 million which is reflected in other income (expense) in the 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, the Company determined the construction-in-progress that was dedicated to the ABO-101 and ABO-102 programs had no future value, and thus recorded an impairment charge of $ 1.8 million for the year ended December 31, 2022, which was net of a cash refund from the builder of approximately $ 1.5 million. F- 11 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, the Company determined the remaining value of the licensed technology had no future value and thus recorded an impairment charge of $ 1.4 million for the year ended December 31, 2022. The following table provides a summary of licensed technology (in thousands): SCHEDULE OF LICENSED TECHNOLOGY As of December 31, 2022 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 approximately $ 29,000 and $ 116,000 for the years ended December 31, 2022 and 2021, respectively. NOTE 5 – GOODWILL The following table provides a summary of the changes in the carrying amount of goodwill (in thousands): SCHEDULE OF GOODWILL As of December 31, 2022 2021 Goodwill at the beginning of the year $ — $ 32,466 Less impairment charge — ( 32,466 ) Goodwill at the end of the year $ — $ — As there was no recorded goodwill as of December 31, 2022, the Company did not perform its annual goodwill impairment test for 2022. The Company completed its annual goodwill impairment test as of year-end 2021 and determined that the carrying value of its net assets exceeded fair value using its market capitalization as a proxy for fair value. In accordance with ASC 350, the Company recognized an impairment loss for the excess of the carrying value over the fair value but limited to the total amount of goodwill recorded on its consolidated balance sheet. As a result, the Company recorded a goodwill impairment charge of $ 32.5 million for the year ended December 31, 2021. NOTE 6 – FAIR VALUE MEASUREMENTS The Company calculates the fair value of the Company’s assets and liabilities that qualify as financial instruments and includes 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. F- 12 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 (in thousands): SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING AND NON-RECURRING BASIS Description Fair Value at December 31, 2022 Level 1 Level 2 Level 3 Recurring Assets Cash equivalents Money market fund $ 12,923 $ 12,923 $ — $ — Short-term investments U.S. treasury and federal agency securities 37,932 — 37,932 — Total assets measured at fair value $ 50,855 $ 12,923 $ 37,932 $ — Liabilities Warrant liabilities $ — — — $ 19,657 Total liabilities measured at fair value $ — $ — $ — $ 19,657 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 and federal agency 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 Liabilities Warrant liabilities $ — — — $ 9,007 Total liabilities measured at fair value $ — $ — $ — $ 9,007 F- 13 Warrant Liabilities The warrant liabilities are valued using significant inputs not observable in the market. Accordingly, the warrant liability is measured at fair value on a recurring basis using unobservable inputs and are classified as Level 3 inputs within the fair value hierarchy. Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. The Company’s valuation of the common stock warrants utilized the Black-Scholes option-pricing model, which incorporated assumptions and estimates to value the common stock warrants. The Company assessed these assumptions and estimates at the end of each reporting period. Assumptions used to estimate the fair value of the warrants in the Black-Scholes option-pricing model are as follows: SCHEDULE OF ESTIMATE FAIR VALUE OF WARRANTS As of December 31, 2022 2021 Common share price $ 1.72 – $ 2.18 $ 5.04 – $ 6.10 Expected term (years) 3.96 – 4.84 4.96 – 5.00 Risk-free interest rate (%) 3.91 % – 4.01 % 1.18 % – 1.26 % Volatility (%) 102.40 % – 107.55 % 98.26 % – 98.69 % As of December 31, 2022, the Company had outstanding warrant liabilities related to the 2022 private placement that allow the holders to purchase 7,609,879 shares of common stock at a weighted average exercise price of $ 4.75 per share. The expiration date for these warrant liabilities is November 2027. As of December 31, 2022 and 2021, the Company had outstanding warrant liabilities related to the 2021 public offering that allow the holders to purchase 1,788,000 shares of common stock at a weighted average exercise price of $ 9.75 per share. The expiration date for these warrant liabilities is December 2026. The following table provides a summary of the activity on the warrant liabilities (in thousands): SCHEDULE OF ACTIVITY OF WARRANT LIABILITIES 2022 2021 As of December 31, 2022 2021 Beginning warrant liabilities $ 9,007 $ — Fair value of warrants issued in connection with public offering — 9,007 Fair value of warrants issued in connection with private offering 22,034 — Gain recognized in earnings from change in fair value ( 11,384 ) — Ending warrant liabilities $ 19,657 $ 9,007 NOTE 7 – LOAN PAYABLE On May 2, 2020, the Company received loan proceeds in the amount of approximately $ 1.8 million (the “PPP Loan”) under the Paycheck Protection Program (“PPP”). The PPP was established under the Coronavirus Aid, Relief and Economic Security Act, as amended (“CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). Under the terms of the CARES Act, PPP loan recipients can apply for loan forgiveness. The loan forgiveness for all or a portion of PPP loans was determined, subject to limitations, based on the use of loan proceeds over the 24 weeks after the loan proceeds are disbursed. In July 2021, the Company received notice from the SBA that its PPP loan was forgiven. The extinguishment of the PPP loan payable was recorded as PPP loan payable forgiveness income in the statement of operations and comprehensive loss and as non-cash PPP loan payable forgiveness income in the statements of cash flows during the year ended December 31, 2021. NOTE 8 – SETTLEMENT LIABILITY On November 4, 2018, the Company entered into a license agreement with REGENXBIO Inc. (“REGENXBIO”) to obtain rights to an exclusive worldwide license (subject to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to REGENXBIO’s NAV AAV9 vector for gene therapies for treating MPS IIIA, MPS IIIB, CLN1 Disease and CLN3 Disease. Consideration for the rights granted under the original agreement included fees totaling $ 180 million and a running royalty on net sales, including: (i) an initial fee of $ 20 million, $ 10 million of which was due to REGENXBIO shortly after the effective date of the agreement, and $ 10 million of which was to be due on the first anniversary of the effective date of the agreement in November 2019, (ii) annual fees totaling up to $ 100 million, payable in $ 20 million annual installments beginning on the second anniversary of the effective date (the first of which was to remain payable if the agreement were terminated before the second anniversary in November 2020), (iii) sales milestone payments totaling $ 60 million, and (iv) royalties payable in the low double digits to low teens on net sales of products covered under the agreement. The license was being amortized over the life of the patent of eight years . On November 1, 2019, the Company entered into an amendment of the original license agreement. The amended agreement replaced the $ 10 million payment due on November 4, 2019 with a $ 3 million payment due on November 4, 2019 and an additional $ 8 million payment (which included $ 1 million of interest) that would have been due no later than April 1, 2020. That $ 8 million payment that had been scheduled to be paid by April 1, 2020 and the $ 20 million payment that had been due to be paid on November 4, 2020 were both recorded as payable to licensor on the consolidated balance sheet. The Company disputed that it was responsible for the $ 8 million and $ 20 million payments, and those payments were the subject of an arbitration between the Company and REGENXBIO. F- 14 Prior to the April 1, 2020 deadline, the Company engaged REGENXBIO in discussions in an attempt to renegotiate the financial terms of the agreement, but the Company was unable to reach an agreement, and did not make the $ 8 million payment due by April 1, 2020. On April 17, 2020, REGENXBIO sent the Company a written demand for the $ 8 million fee, payable within a 15-day cure period after receipt of the demand letter. The license terminated on May 2, 2020 , when the 15-day period expired. On November 12, 2021, the Company entered into a settlement agreement (“Settlement Agreement”) with 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. Under the Settlement Agreement’s terms, the prior license agreement between the parties is not reinstituted, and any future license agreement would need to be negotiated separately and require consideration in addition to the consideration set forth in the Settlement Agreement . The accounting for the Settlement Agreement resulted in a $ 6.7 million gain on settlement with licensor in the statements of operations and comprehensive loss during the year ended December 31, 2021 and a $ 6.7 million non-cash gain on settlement with licensor in the statements of cash flows during the year ended December 31, 2021. As of December 31, 2022 and 2021, the Company recorded the payables due to REGENXBIO in the 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 was nil and $ 4.6 million as of December 31, 2022 and 2021, respectively and the long-term portion due in November 2024 was $ 4.2 million and $ 3.8 million as of December 31, 2022 and 2021, respectively. As of December 31, 2021, the Company recorded $ 5.0 million of restricted cash in the consolidated balance sheet that served as collateral for the payment made to REGENXBIO in November 2022. NOTE 9 – ACCRUED EXPENSES The following table provides a summary of the components of accrued expenses (in thousands): SCHEDULE OF ACCRUED EXPENSES 2022 2021 As of December 31, 2022 2021 Accrued employee compensation $ 2,593 $ 1,794 Accrued contracted services and other 1,398 3,091 Accrued sublicense fee owed to licensor — 700 Total accrued expenses $ 3,991 $ 5,585 NOTE 10 – 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 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. F- 15 During 2022, the Company announced a strategic partner to take over development activities of ABO-102 and that the Company was discontinuing development of ABO-101. As a result, the Company determined the portion of the lease that 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 $ 1.6 million for the year ended December 31, 2022. In November 2022, the Company entered into a sublease agreement with an unrelated third party to occupy approximately 5,700 square feet of the Company’s administrative offices in New York, New York. Because the future sublease income under the executed sublease agreement is less than the amount the Company pays its landlord, the Company recorded an impairment charge of $ 0.9 million for the year ended December 31, 2022. The Company expects to receive approximately $ 1.1 million in future sublease income through September 2025. The following table provides a summary of the components of lease costs and rent (in thousands): SCHEDULE OF COMPONENTS OF LEASE COST 2022 2021 For the year ended December 31, 2022 2021 Operating lease cost $ 1,865 $ 1,761 Variable lease cost 434 445 Short-term lease cost 79 183 Total operating lease costs $ 2,378 $ 2,389 Future minimum lease payments and obligations, which do not include short-term leases, of the Company’s operating lease liabilities as of December 31, 2022 were as follows (in thousands): SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Future minimum lease payments and obligations Operating Leases 2023 $ 1,773 2024 1,815 2025 1,572 2026 811 2027 828 Thereafter 2,587 Total undiscounted operating lease payments 9,386 Less: imputed interest 1,759 Present value of operating lease liabilities $ 7,627 The weighted-average remaining term of the Company’s operating leases was 76 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 December 31, 2022. Future cash receipts from the Company’s sublease agreements as of December 31, 2022 are as follows (in thousands): SCHEDULE OF FUTURE CASH RECEIPTS FROM OPERATING SUBLEASE Operating Future cash receipts Subleases 2023 $ 357 2024 429 2025 343 Total future cash receipts $ 1,129 F- 16 NOTE 11 – 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 December 31, 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 year ended December 31, 2022, the Company recognized approximately $ 3.8 million in deemed dividends related to the Preferred Stock in the consolidated statements of operations and comprehensive loss and the 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. 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 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 offering expenses payable by the Company. The net proceeds were allocated to the warrant liability as noted below with the remainder of $ 7.0 million recorded in common stock and additional paid-in capital. In the event of certain fundamental transactions involving the Company, the holders of the stock purchase warrants may require the Company to make a payment based on a Black-Scholes valuation, using specific inputs that are not considered indexed to the Company’s stock in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). Therefore, the Company accounted for the stock purchase warrants as liabilities and were recorded at the closing date fair value of $ 9.0 million which was based on a Black-Scholes option pricing model. The remainder of the proceeds were allocated to common stock issued and recorded as a component of equity. As of December 31, 2022, there were 1,788,000 post-split stock purchase warrants issued in connection with the public offering 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 year ended December 31, 2022. F- 17 Open Market Sale Agreement On August 17, 2018, the Company entered into an open market sale agreement with Jefferies LLC (as amended, the “ATM Agreement”) pursuant to which, the Company may sell from time to time, through Jefferies LLC, shares of its common stock for an aggregate sales price of up to $ 150.0 million. Any sales of shares pursuant to this agreement are made under the Company’s effective “shelf” registration statement on Form S-3 that is on file with and has been declared effective by the SEC. The Company is currently subject to General Instruction I.B.6 of Form S-3, as a result of which the amount of funds the Company can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the voting and non-voting common equity held by non-affiliates. The Company remains subject to this one-third limitation until such time as its public float exceeds $75 million. The Company sold 3,479,016 and 146,872 post-split shares during the years ended December 31, 2022 and 2021, respectively, of its common stock under the ATM Agreement and received $ 12.8 million and $ 8.1 million of net proceeds during the years ended December 31, 2022 and 2021, respectively. Private Placement Offerings On November 3, 2022, the Company sold 7,065,946 shares of its common stock, and in lieu of shares of common stock, pre-funded warrants exercisable for 543,933 shares of common stock, and accompanying warrants to purchase 7,609,879 shares of its common stock to a group of new and existing institutional investors in a private placement. The offering price for each share of common stock and accompanying warrant was $ 4.60 , and the offering price for each pre-funded warrant and accompanying warrant was $ 4.59 , which equaled the offering price per share of the common stock and accompanying warrant, less the $ 0.01 per share exercise price of each pre-funded warrant. Each accompanying warrant represents the right to purchase one share of the Company’s common stock at an exercise price of $ 4.75 per share of common stock. The pre-funded warrants were exercised in December 2022 and converted to 543,933 shares of commons stock. Total shares sold and converted during the year ended December 31, 2022 were 7,609,879 for an aggregate purchase price of $ 35.0 million gross, or $ 32.6 million net of related costs of $ 1.5 million which was expensed to general and administrative expenses and $ 0.9 million which was recorded as a reduction to additional paid-in-capital. The net proceeds were allocated to the warrant liability as noted below with the remainder of $ 12.9 million and $ 0.1 million recorded in additional paid-in capital and common stock, respectively. In the event of certain fundamental transactions involving the Company, the holders of the stock purchase warrants may require the Company to make a payment based on a Black-Scholes valuation, using specific inputs that are not considered indexed to the Company’s stock in accordance with ASC 815. Therefore, the Company accounted for the stock purchase warrants as liabilities and were recorded at the closing date fair value of $ 22.0 million which was based on a Black-Scholes option pricing model. The remainder of the proceeds were allocated to common stock issued and recorded as a component of equity. As of December 31, 2022, there were 7,609,879 warrants outstanding related to this private placement offering. The warrants expire on November 3, 2027 . 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. NOTE 12 – LICENSE/SUPPLIER AGREEMENTS Sublicense and Inventory Purchase Agreements Relating to CLN1 Disease In August 2020, the Company entered into sublicense and inventory purchase agreements with Taysha Gene Therapies (“Taysha”) relating to a potential gene therapy for CLN1 disease. Under the sublicense agreement, Taysha received worldwide exclusive rights to intellectual property and know-how relating to the research, development, and manufacture of the potential gene therapy, which the Company had referred to as ABO-202. Under the inventory purchase agreement, the Company sold to Taysha certain inventory and other items related to ABO-202. The Company assessed these contracts at contract inception and determined that, under ASC 606, the two contracts would be combined and accounted for as a single contract, with a single performance obligation. The Company assessed the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated whether such functionality can be retained without ongoing activities by the Company and determined that the license has significant stand-alone functionality. Furthermore, the Company has no ongoing activities associated with the license to support or maintain the license’s utility. Based on this, the Company determined that the pattern of transfer of control of the license to Taysha was at a point in time. F- 18 The transaction price of the contract includes (i) $ 7.0 million of fixed consideration, (ii) up to $ 26.0 million of variable consideration in the form of event-based milestone payments, (iii) up to $ 30.0 million of variable consideration in the form of sales-based milestone payments, and (iv) other royalty-based payments based on net sales. The event-based milestone payments are based on certain development and regulatory events occurring. At inception, the Company evaluated whether the milestone conditions had been achieved and if it was probable that a significant revenue reversal would not occur before recognizing the associated revenue and determined that these milestone payments were not within the Company’s control or the licensee’s control, such as regulatory approvals, and were not considered probable of being achieved until those approvals were received. Accordingly, at inception, the Company fully constrained the $ 26.0 million of event-based milestone payments until such time that it is probable that significant revenue reversal would not occur. The sales-based milestone payments and other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant item to which the royalties relate. The Company will recognize revenue for these payments at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any sales-based or royalty revenue resulting from this licensing arrangement. Under this arrangement, the Company recognized nil and $ 3.0 million in revenue during the year ended December 31, 2022 and 2021, respectively based on event-based-milestone payments. The Company has no contract assets as of December 31, 2022 and $ 3.0 million as of December 31, 2021. Contract assets are included in accounts receivable on the consolidated balance sheets. As of December 31, 2022 and 2021, the Company does not have any contract liabilities as a result of this transaction. Sublicense Agreement Relating to Rett Syndrome: In October 2020, the Company entered into a sublicense agreement with Taysha for a gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression. The agreement grants Taysha worldwide exclusive rights to intellectual property developed by scientists at the University of North Carolina at Chapel Hill, the University of Edinburgh and the Company, and the Company’s know-how relating to the research, development, and manufacture of the gene therapy for Rett syndrome and MECP2 gene constructs and regulation of their expression. The Company assessed the nature of the promised license to determine whether the license has significant stand-alone functionality and evaluated whether such functionality can be retained without ongoing activities by the Company and determined that the license has significant stand-alone functionality. Furthermore, the Company has no ongoing activities associated with the license to support or maintain the license’s utility. Based on this, the Company determined that the pattern of transfer of control of the license to Taysha was at a point in time. The transaction price of the contract includes (i) $ 3.0 million of fixed consideration, (ii) up to $ 26.5 million of variable consideration in the form of event-based milestone payments, (iii) up to $ 30.0 million of variable consideration in the form of sales-based milestone payments, and (iv) other royalty-based payments based on net sales. The event-based milestone payments are based on certain development and regulatory events occurring. The Company evaluated whether the milestone conditions have been achieved and if it is probable that a significant revenue reversal would not occur before recognizing the associated revenue. The Company determined that these milestone payments are not within the Company’s control or the licensee’s control, such as regulatory approvals, and are not considered probable of being achieved until those approvals are received. Accordingly, the Company has fully constrained the $ 26.5 million of event-based milestone payments until such time that it is probable that significant revenue reversal would not occur. The sales-based milestone payments and other royalty-based payments are based on a level of sales for which the license is deemed to be the predominant item to which the royalties relate. The Company will recognize revenue for these payments at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any sales-based or royalty revenue resulting from this licensing arrangement. Under this arrangement, the Company recognized $ 1.0 million and nil in revenue during the year ended December 31, 2022 and 2021, respectively based on event-based-milestone payments. As of December 31, 2022 and 2021, the Company does not have any contract assets or contract liabilities as a result of this transaction. F- 19 Ultragenyx 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). Under the License Agreement, Ultragenyx assumed 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. As of December 31, 2022 and 2021, the Company does not have any contract assets or contract liabilities as a result of this transaction. NOTE 13 – 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 August 31, 2022 and (2) Abeona Therapeutics Inc. 2005 Equity Incentive Plan (the “2005 Incentive Plan”), under which no further grants can be made. Under the Company’s 2015 Equity Incentive Plan, as amended, up to 1,440,000 shares of its authorized but unissued common stock are reserved for issuance to employees, consultants, or to non-employee members of the Board or to any member of the board of directors (or similar governing authority) of any affiliate of the Company. As of December 31, 2022, the Company had 109,544 shares available for future issuance under the 2015 Equity Incentive Plan. The maximum contractual term of awards is 10 years. Under the 2005 Equity Incentive Plan, as amended, shares of the Company’s authorized but unissued common stock were reserved for issuance to employees, consultants, or to non-employee members of the Board or to any member of the board of directors (or similar governing authority) of any affiliate of the Company. As of January 20, 2015, no additional shares were available for grant under the 2005 Equity Incentive Plan. The following table summarizes stock-based compensation (in thousands): SCHEDULE OF STOCK BASED COMPENSATION 2022 2021 For the year ended December 31, 2022 2021 Research and development $ 925 $ 3,299 General and administrative 2,126 5,617 Total stock-based compensation expense $ 3,051 $ 8,916 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 SEC 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 the Company has not declared nor paid a cash dividend, nor are there any plans to declare a dividend. F- 20 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 year ended December 31, 2022 2021 Expected volatility 95.1 % - 96.0 % 91.6 % - 99.8 % Expected term 6.07 - 6.08 years 5.25 - 6.08 years Risk-free interest rate 1.7 % - 3.3 % 0.8 % - 1.4 % Expected dividend yield 0 % 0 % The Company accounts for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise. The following table summarizes stock option information for the 2015 Equity Incentive Plan: 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, 2020 222,430 $ 55.25 6.86 $ — Granted 195,092 $ 43.75 — $ — Cancelled/forfeited ( 78,101 ) $ 101.75 — $ — Exercised ( 25,227 ) $ 33.00 — $ — Outstanding at December 31, 2021 314,194 $ 38.48 7.63 $ — Granted 7,760 $ 5.30 — $ — Cancelled/forfeited ( 84,384 ) $ 39.25 — $ — Exercised — $ — — $ — Outstanding at December 31, 2022 237,570 $ 37.11 6.50 $ — Exercisable 153,695 $ 36.34 5.49 $ — Unvested 83,875 $ 38.53 8.33 $ — 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 December 31, 2022, the total compensation cost related to non-vested option awards not yet recognized was approximately $ 2.8 million with a weighted average remaining vesting period of 2.1 years. Further information regarding options outstanding under the 2015 Equity Incentive Plan as of December 31, 2022 is summarized below: SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE Weighted-Average Weighted-Average Range of Exercise Prices Number of Options Outstanding Remaining Life In Years Exercise Price Number of Options Exercisable Remaining Life in Years Exercise Price $ 4.00 $ 22.75 25,040 8.9 $ 17.25 6,794 8.8 $ 21.25 25.50 47.00 157,535 5.6 33.17 122,143 4.8 32.80 54.50 58.50 54,795 8.0 57.04 24,558 7.8 57.07 164.75 183.50 200 6.1 164.75 200 6.1 164.75 237,570 153,695 F- 21 The following table summarizes stock option information for the 2005 Incentive Plan: 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, 2020 4,992 $ 213.75 2.87 $ — Cancelled/forfeited ( 1,792 ) $ 538.25 — $ — Exercised — $ — — $ — Outstanding at December 31, 2021 3,200 $ 32.00 1.80 $ — Cancelled/forfeited — $ — — $ — Exercised — $ — — $ — Outstanding at December 31, 2022 3,200 $ 32.00 0.79 $ — Exercisable 3,200 $ 32.00 0.79 $ — Unvested — $ — — $ — Further information regarding options outstanding under the 2005 Equity Incentive Plan as of December 31, 2022 is summarized below: SCHEDULE OF OPTIONS OUTSTANDING AND EXERCISABLE Weighted-Average Weighted-Average Range of Exercise Prices Number of Options Outstanding Remaining Life In Years Exercise Price Number of Options Exercisable Remaining Life in Years Exercise Price $ 32.00 $ 32.00 3,200 0.8 $ 32.00 3,200 0.8 $ 32.00 3,200 3,200 Restricted Stock: The following table summarizes restricted stock award activity: SCHEDULE OF RESTRICTED STOCK AWARD ACTIVITY Number of Awards Weighted Average Grant Date Fair Value Per Unit Outstanding at December 31, 2020 118,100 $ 44.50 Granted 115,627 $ 43.00 Cancelled/forfeited ( 32,776 ) $ 50.50 Vested ( 103,691 ) $ 38.75 Outstanding at December 31, 2021 97,260 $ 46.50 Granted 779,722 $ 3.12 Cancelled/forfeited ( 32,498 ) $ 38.80 Vested ( 27,526 ) $ 48.63 Outstanding at December 31, 2022 816,958 $ 5.35 As of December 31, 2022, there was approximately $ 3.7 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 2.9 years. The total fair value of restricted stock awards that vested was $ 1.3 million and $ 3.6 million during the years ended December 31, 2022 and 2021, respectively. F- 22 NOTE 14 – 401(k) PLAN The Company has a tax-qualified employee savings and retirement plan (the “401(k) Plan”) covering all the Company’s employees in the United States. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit ($ 20,500 in 2022 and $ 19,500 in 2021 for employees who are under age 50 and $ 27,000 in 2022 and $ 26,000 in 2021 for employees who are age 50 and older) and to have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by employees or by us to the 401(k) Plan, and income earned on 401(k) Plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by us, if any, will be deductible by us when made. At the direction of each participant, the Company invests the assets of the 401(k) Plan in any of over 50 investment options. Company contributions under the 401(k) Plan were $ 0.3 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively. NOTE 15 – INCOME TAXES Income tax expense differs from the statutory amounts for each of the following years (in thousands): SCHEDULE OF INCOME TAX EXPENSE 2022 2021 For the year ended December 31, 2022 2021 Income taxes at U.S. statutory rate $ ( 8,336 ) $ ( 17,836 ) Current year reserve 9,539 12,539 Expenses not deductible ( 1,203 ) 5,297 Total tax expense $ — $ — Deferred taxes are provided for the temporary differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities. The temporary differences that give rise to deferred tax assets and liabilities were as follows (in thousands): SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2022 2021 For the year ended December 31, 2022 2021 Deferred tax assets (liabilities): Net operating loss carryforwards $ 75,544 $ 71,001 General business credit carryforwards 4,497 4,741 State credits 2,780 2,780 Property, equipment and goodwill 380 200 Stock options 10,797 10,537 Deferred revenue — 62 Intangible assets 612 367 Accruals 211 16 Accruals 5,480 — Gross deferred tax assets 100,301 89,704 Valuation allowance ( 100,301 ) ( 89,704 ) Net deferred taxes $ — $ — F- 23 As of December 31, 2022, the Company had approximately $ 359.0 million of net operating loss carryforwards and approximately $ 4.5 million of general business credit carryforwards. These carryforwards expire as follows (in thousands): SUMMARY OF NET OPERATING LOSS AND GENERAL BUSINESS CREDIT CARRYFORWARDS Net operating loss carryforwards General business credit carryforwards 2023 $ 5,434 $ 362 2024 8,711 287 2025 2,370 182 2026 7,160 72 2027 9,977 93 Thereafter 80,439 3,501 $ 114,091 $ 4,497 Losses incurred post 2017 do not expire and can only be used to offset 80 % of taxable income in any tax year. As of December 31, 2022, the Company had approximately $ 245.0 million of net operating loss carryforwards that do not expire and can be carried forward indefinitely. Such net operating loss carryforwards can only be used to offset 80 % of taxable income in any given tax year. In addition, the Company’s net operating loss carryforwards may be subject to limitation due to ownership changes. The Company acquired MacroChem Corporation on March 25, 2009 and Somanta Pharmaceuticals, Inc. on January 4, 2008. Both of these corporations were loss-making entities at the time of acquisition. As a result, the net operating losses related to those acquisitions may be subject to annual limitations. NOTE 16 – COMMITMENTS AND CONTINGENCIES Litigation The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount of such loss, and if such amount is not determinable, then the Company accrues the minimum of the range of probable loss. As of December 31, 2022 and 2021, there was no litigation against the Company. F- 24