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. 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, 2023, 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, 2023, based on criteria established in the COSO 2013 framework. Because we are a non-accelerated filer and smaller reporting company, Deloitte & Touche 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. 69 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 2023 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. 70 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 2024 Proxy Statement to be filed with the SEC within 120 days after December 31, 2023, in connection with the solicitation of proxies for our 2024 Annual Meeting of Stockholders (the “2024 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, 6555 Carnegie Ave, 4th Floor, Cleveland, OH 44103. 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, 6555 Carnegie Ave, 4th Floor, Cleveland, OH 44103. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is contained in the 2024 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 2024 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 2024 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 2024 Proxy Statement and is incorporated herein by reference. 71 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 and 034 ) F-1 Consolidated Balance Sheets at December 31, 2023 and 2022 F-3 Consolidated Statements of Operations and Comprehensive Loss for 2023 and 2022 F-4 Consolidated Statements of Stockholders’ Equity for 2023 and 2022 F-5 Consolidated Statements of Cash Flows for 2023 and 2022 F-6 Notes to Consolidated Financial Statements F-7 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. (incorporated by reference to Exhibit 3.3 of our Form 10-K filed on March 29, 2023). 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) 4.4 Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.1 of our Form 8-K filed on July 3, 2023) 4.5 Warrant to Purchase Common Stock, by and between Abeona Therapeutics, Inc. and Avenue Venture Opportunities Fund, L.P., dated as of January 8, 2024 (incorporated by reference to Exhibit 4.1 of our Form 8-K filed on January 8, 2024) 4.6 Warrant to Purchase Common Stock, by and between Abeona Therapeutics, Inc. and Avenue Venture Opportunities Fund II, L.P., dated as of January 8, 2024 (incorporated by reference to Exhibit 4.2 of our Form 8-K filed on January 8, 2024) 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) 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) 72 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) 10.15 Retention Bonus Letter, dated June 15, 2023, to Vishwas Seschadri, Ph.D. (incorporated by reference to Exhibit 10.5 of our Form 10-Q for the quarter ended June 30, 2023) 10.16 Retention Bonus Letter, dated June 15, 2023, to Joseph Vazzano, Ph.D. (incorporated by reference to Exhibit 10.5 of our Form 10-Q for the quarter ended June 30, 2023) 10.17 Retention Bonus Letter, dated June 15, 2023, to Brendan O’Malley, Ph.D. (incorporated by reference to Exhibit 10.5 of our Form 10-Q for the quarter ended June 30, 2023) 10.18 Securities Purchase Agreement, dated July 3, 2023 (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on July 3, 2023) 10.19 Loan and Security Agreement, by and among Abeona Therapeutics, Inc., MacroChem Corporation, Abeona Therapeutics LLC, Avenue Venture Opportunities Fund, L.P., as Agent, and Avenue Venture Opportunities Fund II, L.P., dated as of January 8, 2024 (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on January 8, 2024 10.20 Supplement to the Loan and Security Agreement, by and among Abeona Therapeutics, Inc., MacroChem Corporation, Abeona Therapeutics LLC, Avenue Venture Opportunities Fund, L.P., as Agent, and Avenue Venture Opportunities Fund II, L.P., dated as of January 8, 2024 (incorporated by reference to Exhibit 10.2 of our Form 8-K filed on January 8, 2024) 14 Code of Business Conduct and Ethics 16 Letter from Whitley Penn addressed to the United States Securities and Exchange Commission, dated October 17, 2023 (incorporated by reference to Exhibit 16.1 of our Form 8-K filed on October 18, 2023) 19 Policy on Insider Trading and Confidentiality 21 Subsidiaries of the registrant 23.1 Consent of Deloitte & Touche LLP 23.2 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. 97 Policy Relating to Recovery of Erroneously Awarded Compensation 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. 73 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 18, 2024 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 18, 2024 /s/ Vishwas Seshadri Vishwas Seshadri President, Chief Executive Officer and Director (Principal Executive Officer) Date: March 18, 2024 /s/ Joseph Vazzano Joseph Vazzano Chief Financial Officer (Principal Financial and Accounting Officer) Date: March 18, 2024 /s/ Leila Alland Leila Alland, Director Date: March 18, 2024 /s/ Mark J. Alvino Mark J. Alvino, Director Date: March 18, 2024 /s/ Michael Amoroso Michael Amoroso, Director Chairman of the Board Date: March 18, 2024 /s/ Faith L. Charles Faith L. Charles, Director Date: March 18, 2024 /s/ Christine Silverstein Christine Silverstein, Director Date: March 18, 2024 /s/ Donald A. Wuchterl Donald A. Wuchterl, Director 74 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Abeona Therapeutics Inc Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Abeona Therapeutics Inc (the “Company”) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, statement of stockholders’ equity and statement of cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, 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 the Company’s financial statements based on our audit. 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 audit 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 audit, 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit 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 audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Direct Placement Offering — Refer to Note 9 to the financial statements Critical Audit Matter Description As more fully described in Note 9 to the financial statements, On July 6, 2023, the Company sold 3,284,407 shares of its common stock, and in lieu of shares of common stock, pre-funded warrants exercisable for 2,919,140 shares of common stock (the “2023 Pre-Funded Warrants”), to a group of existing institutional investors for an aggregate purchase price of $25.0 million gross, or $23.0 million net of related costs. The offering price for each share of common stock was $4.03, and the offering price for the 2023 Pre-Funded Warrants was $4.0299, which represents the per share offering price for the Company’s common stock less a $0.0001 per share exercise price for each such 2023 Pre-Funded Warrant. The 2023 Pre-Funded Warrants are immediately exercisable at a nominal exercise price of $0.0001 per share and may be exercised at any time. The prefunded warrants are classified as equity in accordance with ASC 815, Derivatives and Hedging, given the prefunded warrants are indexed to the Company’s own shares of common stock and meet the requirements to be classified in equity. We identified the assessment of the initial accounting for the Direct Placement Offering, specifically the accounting for the 2023 Pre-Funded Warrants as a critical audit matter because of the complexity in applying the accounting framework and the significant judgments made by management in the determination of the classification of the 2023 Pre-Funded Warrants. Auditing these conclusions involved especially subjective judgment and audit effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to accounting for the 2023 Pre-Funded Warrants included the following, among others: ● We obtained and read the agreements associated with the Direct Placement Offering, including the related 2023 Pre Funded Warrant agreements, and tested the accuracy and completeness of the significant terms identified by management for purposes determining the classification and earnings per share treatment. ● With the assistance of professionals in our firm having expertise in the accounting treatment for equity instruments, including warrants, we evaluated the Company’s conclusions regarding the accounting treatment applied to the 2023 Pre-Funded Warrants, including the classification of warrants as equity and the treatment of shares associated with the 2023 Pre-Funded Warrants within weighted average number of shares of common stock outstanding. /s/ Deloitte & Touche LLP Morristown, New Jersey March 15, 2024 We have served as the Company’s auditor since 2023. F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Abeona Therapeutics Inc. and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Abeona Therapeutics Inc. and Subsidiaries (the “Company”) as of December 31, 2022 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year 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 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 audit. 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 audit 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 audit 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 audit 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 audit 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 audit provides 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. We served as the Company’s auditor from 2006 to 2023. /s/ WHITLEY PENN LLP Plano, Texas March 29, 2023 F- 2 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share amounts) December 31, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 14,473 $ 14,217 Short-term investments 37,753 37,932 Restricted cash 338 338 Other receivables 2,444 188 Prepaid expenses and other current assets 729 424 Total current assets 55,737 53,099 Property and equipment, net 3,533 5,741 Operating lease right-of-use assets 4,455 5,331 Other assets 277 43 Total assets $ 64,002 $ 64,214 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,858 $ 1,811 Accrued expenses 5,985 3,991 Current portion of operating lease liability 998 1,773 Current portion of payable to licensor 4,580 — Other current liabilities 1 204 Total current liabilities 13,422 7,779 Payable to licensor — 4,163 Long-term operating lease liabilities 4,402 5,854 Warrant liabilities 31,352 19,657 Total liabilities 49,176 37,453 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, 2023 and December 31, 2022, respectively — — Common stock - $ 0.01 par value; authorized 200,000,000 shares; 26,523,878 and 17,719,720 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 265 177 Additional paid-in capital 764,151 722,049 Accumulated deficit ( 749,524 ) ( 695,336 ) Accumulated other comprehensive loss ( 66 ) ( 129 ) Total stockholders’ equity 14,826 26,761 Total liabilities and stockholders’ equity $ 64,002 $ 64,214 The accompanying notes are an integral part of these consolidated statements. F- 3 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts)   2023 2022 For the years ended December 31,   2023 2022 Revenues: License and other revenues $ 3,500 $ 1,414 Expenses: Royalties 1,605 450 Research and development 31,091 28,965 General and administrative 19,004 17,256 Impairment of licensed technology — 1,355 Loss/(gain) on operating lease right-of-use assets ( 1,065 ) 2,511 Impairment of construction-in-progress — 1,792 Total expenses 50,635 52,329 Loss from operations ( 47,135 ) ( 50,915 ) Interest income 2,117 431 Interest expense ( 418 ) ( 736 ) Change in fair value of warrant liabilities ( 11,695 ) 11,383 Other income 2,943 141 Net loss $ ( 54,188 ) $ ( 39,696 ) Deemed dividends related to Series A and Series B Convertible Redeemable Preferred Stock — ( 3,782 ) Net loss attributable to Common Shareholders $ ( 54,188 ) $ ( 43,478 ) Basic and diluted loss per common share $ ( 2.53 ) $ ( 5.53 ) Weighted average number of common shares outstanding – basic and diluted 21,380,476 7,861,515 Other comprehensive income (loss): Change in unrealized gains (losses) related to available-for-sale debt securities 34 ( 99 ) Foreign currency translation adjustments 29 ( 3 ) Comprehensive loss $ ( 54,125 ) $ ( 43,580 ) The accompanying notes are an integral part of these consolidated statements. F- 4 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) Shares Amount Shares Amount Shares Amount Capital Deficit Loss Equity 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, 2021 — $ — — $ — 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 Balance — $ — — $ — 17,719,720 $ 177 $ 722,049 $ ( 695,336 ) $ ( 129 ) $ 26,761 Stock-based compensation expense — — — — — — 4,768 — — 4,768 Issuance of common stock in connection with restricted share awards, net of cancellations and shares settled for tax withholding settlement — — — — 1,859,869 18 ( 200 ) — — ( 182 ) Issuance of common stock, net of offering costs under open market sale agreement (ATM) — — — — 3,659,882 37 14,586 — — 14,623 Issuance of common stock, net of offering costs under direct placement offering — — — — 3,284,407 33 22,948 — — 22,981 Net loss — — — — — — — ( 54,188 ) — ( 54,188 ) Other comprehensive income — — — — — — — — 63 63 Balance at December 31, 2023 — $ — — $ — 26,523,878 $ 265 $ 764,151 $ ( 749,524 ) $ ( 66 ) $ 14,826 Balance — $ — — $ — 26,523,878 $ 265 $ 764,151 $ ( 749,524 ) $ ( 66 ) $ 14,826 The accompanying notes are an integral part of these consolidated statements. F- 5 ABEONA THERAPEUTICS INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) 2023 2022 For the years ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 54,188 ) $ ( 39,696 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 2,288 3,093 Stock-based compensation expense 4,768 3,051 Change in fair value of warrant liabilities 11,695 ( 11,383 ) Non-cash impairment of licensed technology — 1,355 Non-cash loss/(gain) on operating lease right-of-use assets ( 1,065 ) 2,511 Non-cash impairment of construction-in-progress — 1,792 Accretion and interest on short-term investments ( 93 ) ( 380 ) Amortization of right-of-use lease assets 910 1,484 Non-cash interest 417 736 Loss on disposal of property and equipment 47 138 Gain on lease termination — ( 292 ) Change in operating assets and liabilities: Accounts receivable — 3,000 Other receivables ( 2,041 ) ( 188 ) Prepaid expenses and other current assets ( 155 ) 1,953 Other assets ( 234 ) 125 Accounts payable and accrued expenses 2,041 ( 4,108 ) Lease liabilities ( 1,196 ) ( 1,382 ) Change in payable to licensor — ( 5,000 ) Other current liabilities ( 203 ) ( 292 ) Net cash used in operating activities ( 37,009 ) ( 43,483 ) Cash flows from investing activities: Capital expenditures ( 331 ) ( 130 ) Proceeds from disposal of property and equipment 204 1,734 Purchases of short-term investments ( 51,636 ) ( 78,212 ) Proceeds from maturities of short-term investments 51,971 52,644 Net cash provided by (used in) investing activities 208 ( 23,964 ) Cash flows from financing activities: Proceeds from ATM sales of common stock, net of issuance costs 14,408 12,839 Proceeds from sales of common stock under direct placement offering, net of issuance costs 22,981 — Proceeds from sales of common stock and warrants in private offering, net of issuance costs — 34,121 Proceeds from net settlement of restricted share awards ( 182 ) ( 5 ) Payment of debt issuance cost ( 150 ) — 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 37,057 43,173 Net increase (decrease) in cash, cash equivalents and restricted cash 256 ( 24,274 ) Cash, cash equivalents and restricted cash at beginning of year 14,555 38,829 Cash, cash equivalents and restricted cash at end of year $ 14,811 $ 14,555 Supplemental cash flow information: Cash and cash equivalents $ 14,473 $ 14,217 Restricted cash 338 338 Total cash, cash equivalents and restricted cash $ 14,811 $ 14,555 Supplemental non-cash flow information: Additions (deletions) to right-of-use lease assets in exchange for new or modifications to operating lease liabilities $ 419 $ ( 77 ) 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- 6 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 for pz-cel, an autologous, engineered cell therapy currently in development for recessive dystrophic epidermolysis bullosa (“RDEB”). The Company’s development portfolio also features adeno-associated virus (“AAV”)-based gene therapies designed to treat highly unmet, medically needed 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, 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. Liquidity In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the accompanying consolidated financial statements were issued. As a biopharmaceutical organization, the Company has devoted substantially all of its resources since inception to research and development activities for pz-cel and other product candidates, business planning, raising capital, establishing its intellectual property portfolio, acquiring or discovering product candidates, and providing general and administrative support for these operations. As a result, the Company has incurred significant operating losses and negative cash flows from operations since its inception and anticipates such losses and negative cash flows will continue for the foreseeable future. F- 7 Since its inception, the Company has funded its operations primarily with proceeds from sales of shares of its stock. The Company has incurred recurring losses since its inception, including net losses contributable to Common Shareholders of $ 54.2 million and $ 43.5 million for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, the Company had an accumulated deficit of $ 749.5 million. To date, the Company has not generated any significant revenues and expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these consolidated financial statements, the Company expects that its existing cash, cash equivalents, restricted cash and short-term investments of $ 52.6 million as of December 31, 2023 in addition to the $ 20 million received in January 2024 as part of a credit facility with Avenue Venture Opportunities Fund, L.P. (see Footnote 15) and the $ 5.3 million in net proceeds from the Company’s common stock sales subsequent to December 31, 2023, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the issuance date of these consolidated financial statements. While the Company believes its capital resources are sufficient to fund the Company’s on-going operations for the next 12 months from the issuance date of these consolidated financial statements, the Company’s liquidity could be materially affected over this period by: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutive third-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to pz-cel; (4) any other unanticipated material negative events or costs. One or more of these events or costs could materially affect the Company’s liquidity. If the Company is unable to meet its obligations when they become due, the Company may have to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 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. The Company’s significant estimates include, but are not limited to, fair value of warrant liabilities, the incremental borrowing rate related to the Company’s operating leases and stock-based compensation. Due to the uncertainty inherent in such estimates, actual results could differ from these estimates and assumptions. 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 leased office space. F- 8 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 evaluates 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. Other Receivables Other receivables include employee retention credits (“ERC”), sublease rent receivables and other miscellaneous receivables that are expected to be collected within the next twelve months. As of December 31, 2023 and December 31, 2022, the Company had ERC receivables of $ 2.1 million and nil , respectively which was recorded in other receivables and as a component of other income in the consolidated statements of operations and comprehensive loss. 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 five 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 maintains 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 determines 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. F- 9 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. Credit Losses The Company reviews its available-for-sale investments for credit losses on a collective basis by major security type and in line with the Company’s investment policy. As of December 31, 2023, the Company’s available-for-sale investments were in securities that are issued by the U.S. treasury and U.S. federal agencies, are highly rated, and have a history of zero credit losses. The Company reviews the credit quality of its accounts receivables by monitoring the aging of its accounts receivable, the history of write offs for uncollectible accounts, and the credit quality of its significant customers, the current economic environment/macroeconomic trends, supportable forecasts, and other relevant factors. The Company’s accounts receivable are with customers that do not have a history of uncollectibility nor a history of significantly aged accounts receivables. As of December 31, 2023, the Company did not recognize a credit loss allowance for its investments or accounts receivable. 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. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company enters into licensing agreements that are within the scope of ASC 606, under which it may exclusively license rights to research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products. As part of the accounting for these arrangements, the Company must use significant judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. Amounts received prior to revenue recognition are recorded as deferred revenue. F- 10 Exclusive Licenses If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a performance obligation is distinct from the other performance obligations, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can benefit from a performance obligation for its intended purpose without the receipt of the remaining performance obligation, whether the value of the performance obligation is dependent on the unsatisfied performance obligation, whether there are other vendors that could provide the remaining performance obligation, and whether it is separately identifiable from the remaining performance obligation. For licenses that are combined with other performance obligation, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount of revenue the Company records in future periods. Milestone Payments At the inception of each arrangement that includes research or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant cumulative revenue reversal would not occur, the associated milestone value is included in the transaction price. An output method is generally used to measure progress toward complete satisfaction of a milestone. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant cumulative revenue reversal would not occur. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment. Collaborative Arrangements The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC 808, Collaborative Arrangements (ASC 808). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606. Amounts that are owed to collaboration partners are recognized as an offset to collaboration revenue as such amounts are incurred by the collaboration partner. For those elements of the arrangement that are accounted for pursuant to ASC 606, the Company applies the five-step model described above under ASC 606. F- 11 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, professional expenses (i.e., legal expenses), investor relations fees and commercial readiness costs. 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 the years ended December 31, 2023 and 2022, 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. 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 outstanding during the period. The weighted average number of shares of common stock includes the weighted average effect of outstanding pre-funded warrants for the purchase of shares of common stock for which the remaining unfunded exercise price is $ 0.0001 or less per share (Note 9). 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. F- 12 The following table sets forth the potential securities that could potentially dilute basic loss per share in the future that were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the periods presented: SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE 2023 2022 For the year ended December 31, 2023 2022 Stock options 179,001 240,770 Restricted stock 2,448,169 816,958 Warrants 9,397,879 9,397,879 Total 12,025,049 10,455,607 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. The Company estimates the expected term using the “simplified” method, as outlined in SEC Staff Accounting Bulletin No. 107, “Share-Based Payment.” 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 in 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. On July 6, 2023, the Company issued pre-funded warrants to purchase 2,919,140 shares of common stock, with an exercise price of $ 4.0299 per share. The prefunded warrants are classified as equity in accordance with ASC 815, Derivatives and Hedging , given the prefunded warrants are indexed to the Company’s own shares of common stock and meet the requirements to be classified in equity. The prefunded warrants were recorded at their relative fair value at issuance in the stockholders’ equity section of the consolidated balance sheet and the prefunded warrants are considered outstanding shares in the basic earnings per share calculation given their nominal exercise price. Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments , which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The new guidance was effective for the Company on January 1, 2023, and the adoption did not have a material impact on the Company’s consolidated financial statements. Recently Issued Accounting Pronouncements In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that the adoption will have on its consolidated financial statements. F- 13 In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The standard is effective for annual reporting periods beginning after December 15, 2023, and interim periods within years beginning after December 15, 2024, with early adoption permitted. The Company is currently assessing the impact that the adoption will have on its consolidated financial statements. 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, 2023 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Available-for-sale, short-term investments: U.S. treasury securities $ 8,406 — ( 13 ) $ 8,393 U.S. federal agency securities 29,413 — ( 53 ) 29,360 Total available-for-sale, short-term investments $ 37,819 — ( 66 ) $ 37,753 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 As of December 31, 2023, the available-for-sale securities classified as short-term investments mature in one year or less. The Company carries its available-for-sale securities at fair value in the consolidated balance sheets. Unrealized losses on available-for-sale securities as of December 31, 2023, 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, 2023. 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, 2023 or 2022. F- 14 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 Useful lives (years) 2023 2022 As of December 31, Useful lives (years) 2023 2022 Laboratory equipment 5 $ 6,935 $ 7,636 Furniture, software and office equipment 3 to 5 986 1,379 Leasehold improvements Shorter of remaining lease term or useful life 8,603 8,605 Construction-in-progress — — Subtotal 16,524 17,620 Less: accumulated depreciation ( 12,991 ) ( 11,879 ) Total property and equipment, net $ 3,533 $ 5,741 Depreciation and amortization on property and equipment was $ 2.3 million and $ 3.1 million for the years ended December 31, 2023 and 2022, respectively. The Company incurred a loss on disposal of equipment of $ 47,000 and $ 0.1 million during the years ended December 31, 2023 and 2022, respectively, which is reflected in other income 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 $ 1.5 million. NOTE 4 – LICENSED TECHNOLOGY On May 15, 2015, the Company acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital to the AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type B and Sanfilippo Syndrome Type A, respectively. The license was being amortized to expense over the life of the license of 20 years . On March 31, 2022, the Company announced that it was pursuing a strategic partner to take over development activities of ABO-102 and that it was discontinuing development of ABO-101. As a result of this shift in priorities, the Company determined the remaining value of the licensed technology had no future value and thus recorded an impairment charge of $ 1.4 million for the year ended December 31, 2022. There is no remaining net value of licensed technology as of December 31, 2023 and December 31, 2022. The following table provides a summary of licensed technology (in thousands): SCHEDULE OF LICENSED TECHNOLOGY 2023 2022 As of December 31, 2023 2022 Licensed technology $ — $ 2,156 Less accumulated amortization — ( 801 ) Less impairment charge — ( 1,355 ) Total licensed technology, net $ — $ — Amortization expense on licensed technology was nil and approximately $ 29,000 for the years ended December 31, 2023 and 2022, respectively. F- 15 NOTE 5 – 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 other receivables, prepaid expenses and other current assets, other assets, accounts payable, accrued expenses, and payables to licensor approximate their carrying amounts due to the relatively short maturity of these instruments. U.S. GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: ● Level 1 - Quoted prices in active markets for identical assets or liabilities. ● Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. ● Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation techniques that use significant unobservable inputs. The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The following table provides a summary of financial assets measured at fair value on a recurring and non-recurring basis (in thousands): SCHEDULE OF FAIR VALUE, ASSETS AND LIABILITIES MEASURED ON RECURRING AND NON-RECURRING BASIS Description Fair Value at December 31, 2023 Level 1 Level 2 Level 3 Recurring Assets Cash equivalents Money market fund $ 1,034 $ 1,034 $ — $ — Short-term investments U.S. treasury securities 8,393 8,393 — — U.S. federal agency securities 29,360 — 29,360 — Total assets measured at fair value $ 38,787 $ 9,427 $ 29,360 $ — Liabilities Payable to licensor $ 4,580 $ — $ — $ 4,580 Warrant liabilities 31,352 — — 31,352 Total liabilities measured at fair value $ 35,932 $ — $ — $ 35,932 F- 16 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 $ — $ — $ 19,657 Total liabilities measured at fair value $ 19,657 $ — $ — $ 19,657 Warrant Liabilities As of December 31, 2023 and 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 an exercise price of $ 4.75 per share. The expiration date for these warrant liabilities is November 2027. As of December 31, 2023 and 2022, 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 an exercise price of $ 9.75 per share. The expiration date for these warrant liabilities is December 2026. The common stock warrants are not indexed to the Company’s own stock and therefore have been classified as liabilities at their estimated fair value. Changes in the estimated fair value of the warrant liabilities is recorded as changes in fair value of warrant liabilities in the consolidated statement of operations and comprehensive loss. The following table provides a summary of the activity on the warrant liabilities (in thousands): SCHEDULE OF ACTIVITY OF WARRANT LIABILITIES 2023 2022 As of December 31, 2023 2022 Beginning warrant liabilities $ 19,657 $ 9,007 Fair value of warrants issued in connection with private offering — 22,034 Loss (gain) recognized in earnings from change in fair value 11,695 ( 11,384 ) Ending warrant liabilities $ 31,352 $ 19,657 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. F- 17 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, 2023 2022 Common share price $ 5.01 $ 1.72 – $ 2.18 Expected term (years) 2.96 – 3.84 3.96 – 4.84 Risk-free interest rate (%) 3.84 % – 3.92 % 3.91 % – 4.01 % Volatility (%) 100% 102.40 % – 107.55 % Expected dividend yield (%) 0% 0% NOTE 6 – SETTLEMENT LIABILITY On November 12, 2021, the Company entered into a settlement agreement (“Settlement Agreement”) with the Company’s prior licensor REGENXBIO Inc. (“REGENXBIO”) to resolve all existing disputes between the parties. In accordance with the Settlement Agreement, the Company agreed to pay REGENXBIO a total of $ 30.0 million, payable as follows: (1) $20.0 million paid in November 2021 after execution of the Settlement Agreement, (2) $5.0 million on the first anniversary of the effective date of the Settlement Agreement (paid in November 2022), 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 . As of December 31, 2023 and 2022, the Company recorded the payable due to REGENXBIO in the consolidated balance sheet based on the present value of the remaining payments due to REGENXBIO under the Settlement Agreement using an effective interest rate of 9.6 %. The present value of the amount due in November 2024 was $ 4.6 million and $ 4.2 million as of December 31, 2023 and 2022, respectively. NOTE 7 – ACCRUED EXPENSES The following table provides a summary of the components of accrued expenses (in thousands): SCHEDULE OF ACCRUED EXPENSES 2023 2022 As of December 31, 2023 2022 Accrued employee compensation $ 3,688 $ 2,593 Accrued contracted services and other 2,297 1,398 Total accrued expenses $ 5,985 $ 3,991 NOTE 8 – LEASES The Company leases space under operating leases for administrative, manufacturing and laboratory facilities in Cleveland, Ohio. The Company also leases office space in New York, New York, that the Company sublets. The Company also leases certain office equipment under operating leases, which have a non-cancelable lease term of less than one year and the Company has elected the practical expedient to exclude these short-term leases from the Company’s right-of-use assets and lease liabilities. During 2023, the Company terminated one of its operating leases for office space. The termination resulted in a gain of $ 1.1 million representing the difference between the carry value of the right-of-use assets and the related lease liabilities. This gain was recorded in the year ended December 31, 2023, and is included in loss/(gain) on operating lease right-of-use assets in the consolidated statement of operations and comprehensive loss. During 2023, the Company modified one of its operating leases for office space to add up to 14,032 square feet to the Company’s existing facility in Cleveland, Ohio. The lease modification resulted in the recognition of $ 0.4 million of additional right-of-use assets and related lease liabilities in the Company’s consolidated balance sheet during the year ended December 31, 2023. F- 18 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 and is included in loss/(gain) on operating lease right-of-use assets in the consolidated statement of operations and comprehensive loss. 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. In April of 2023, the Company entered into a sublease agreement with an unrelated third party to occupy approximately 4,670 square feet of the Company’s administrative offices in New York, New York. The Company expects to receive $ 1.1 million in future sublease income through September 2025 from the two subleases noted above. The following table provides a summary of the Company’s operating lease liabilities (in thousands): SUMMARY OF OPERATING LEASE LIABILITIES 2023 2022 As of December 31, 2023 2022 Current operating lease liability $ 998 $ 1,773 Non-current operating lease liability 4,402 5,854 Total operating lease liability $ 5,400 $ 7,627 Lease costs and rent are reflected in general and administrative expenses and research and development expenses in the consolidated statements of operations and comprehensive loss, as determined by the underlying activities. The following table provides a summary of the components of lease costs and rent (in thousands): SCHEDULE OF COMPONENTS OF LEASE COST 2023 2022 For the year ended December 31, 2023 2022 Operating lease cost $ 1,389 $ 1,865 Variable lease cost 358 434 Short-term lease cost 63 79 Total operating lease costs $ 1,810 $ 2,378 Cash paid for amounts included in the measurement of operating lease liabilities was $ 1.2 million and $ 1.8 million for the years ended December 31, 2023 and 2022, respectively. F- 19 Future minimum lease payments and obligations, which do not include short-term leases, related to the Company’s operating lease liabilities as of December 31, 2023 were as follows (in thousands): SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES Future minimum lease payments and obligations Operating Leases 2024 $ 998 2025 1,555 2026 791 2027 807 2028 823 Thereafter 1,693 Total undiscounted operating lease payments 6,667 Less: imputed interest 1,267 Present value of operating lease liabilities $ 5,400 The weighted-average remaining term of the Company’s operating leases was 65 months and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 7.4 % as of December 31, 2023. The Company received $ 0.5 million and $ 0.1 million during the year ended December 31, 2023 and 2022, respectively, of sublease income which is recorded in other income on the consolidated statement of operations and comprehensive loss. Future cash receipts from the Company’s sublease agreements as of December 31, 2023 are as follows (in thousands): SCHEDULE OF FUTURE CASH RECEIPTS FROM OPERATING SUBLEASE Operating Future cash receipts Subleases 2024 $ 634 2025 485 Total future cash receipts $ 1,119 NOTE 9 – 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 were 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 $ 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. F- 20 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 $ 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 Hed ging (“ASC 815”). Therefore, the Company accounted for the stock purchase warrants as liabilities, which 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, 2023, there were 1,788,000 post-split stock purchase warrants outstanding. These stock purchase warrants expire on December 21, 2026 . During such time as each warrant is outstanding, the holder of the warrant is entitled to participate in any dividends or other distribution of assets along with the holders of shares of common stock. There was no warrant activity during the year ended December 31, 2023, other than the change in fair value of the warrants. Open Market Sale Agreement On August 17, 2018, the Company entered into an open market sale agreement (as amended, the “ATM Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which, the Company may sell from time to time, through Jefferies, 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 sold 3,659,882 and 3,479,016 shares of its common stock under the ATM Agreement during the years ended December 31, 2023 and 2022, respectively, resulting in net proceeds of $ 14.4 million and $ 12.8 million during the years ended December 31, 2023 and 2022, respectively. Subsequent to December 31, 2023 and through March 1, 2024, the Company sold 724,659 shares of its common stock under the ATM Agreement resulting in $ 5.3 million in net proceeds. Private Placement Offering 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. F- 21 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 is accounting for the stock purchase warrants as liabilities. On November 3, 2022, the stock purchase warrants 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, 2023, 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. There was no warrant activity during the year ended December 31, 2023, other than the change in fair value of the warrants. Direct Placement Offering On July 6, 2023, the Company sold 3,284,407 shares of its common stock, and in lieu of shares of common stock, pre-funded warrants exercisable for 2,919,140 shares of common stock (the “2023 Pre-Funded Warrants”) , to a group of existing institutional investors for an aggregate purchase price of $ 25.0 million gross, or $ 23.0 million net of related costs. The offering price for each share of common stock was $ 4.03 , and the offering price for the 2023 Pre-Funded Warrants was $ 4.0299 , which represents the per share offering price for the Company’s common stock less a $ 0.0001 per share exercise price for each such 2023 Pre-Funded Warrant . The 2023 Pre-Funded Warrants are immediately exercisable at a nominal exercise price of $ 0.0001 per share, may be exercised at any time and do not have an expiration date. None of the 2023 Pre-Funded Warrants have been exercised as of December 31 , 2023. The prefunded warrants are classified as equity in accordance with ASC 815, Derivatives and Hedging , given the prefunded warrants are indexed to the Company’s own shares of common stock and meet the requirements to be classified in equity. The prefunded warrants were recorded at their relative fair value at issuance in the stockholders’ equity section of the consolidated balance sheet and the prefunded warrants are considered outstanding shares in the basic earnings per share calculation for the year ended December 31, 2023 given their nominal exercise price. NOTE 10 – STOCK-BASED COMPENSATION The Company previously granted stock options under its 2005 Equity Incentive Plan (the “2005 Incentive Plan”), under which no further grants can be made. In addition, prior to May 17, 2023, the Company had previously granted stock options and stock awards under the Abeona Therapeutics Inc. 2015 Equity Incentive Plan (the “2015 Incentive Plan”). As of May 17, 2023, no further grants can be made under the 2015 Incentive Plan. The Company now grants stock options and stock awards under the Abeona Therapeutics Inc. 2023 Equity Incentive Plan (the “2023 Incentive Plan”) which was approved by stockholders on May 17, 2023. As of December 31, 2023, there were 156,591 shares available to be granted under the 2023 Incentive Plan. In addition, in 2023, the Company’s board of directors approved various restricted stock awards granted to certain new hires as inducement grants. On October 10, 2023, the Company’s board of directors approved the Abeona Therapeutics Inc. 2023 Employment Inducement Equity Incentive Plan (the “Inducement Plan”). As of December 31, 2023, there were 859,400 shares available to be granted under the Inducement Plan. The following table summarizes stock-based compensation (in thousands): SCHEDULE OF STOCK BASED COMPENSATION 2023 2022 For the year ended December 31, 2023 2022 Research and development $ 1,085 $ 925 General and administrative 3,683 2,126 Total stock-based compensation expense $ 4,768 $ 3,051 F- 22 Stock Options The Company estimates the fair value of each option award on the date of grant using the Black-Scholes option-pricing 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. The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-pricing 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, 2023* 2022 Expected volatility (%) n/a 95.1 % - 96.0 % Expected term (years) n/a 6.07 - 6.08 years Risk-free interest rate (%) n/a 1.7 % - 3.3 % Expected dividend yield (%) n/a 0 % * the Company did not grant any stock options in the year ended December 31, 2023. The Company accounts for forfeitures as they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise. F- 23 The following table summarizes stock option activity for the 2015 Incentive Plan and the 2005 Incentive Plan during (there were no stock options granted under the 2023 Incentive Plan or the Inducement Plan during the year ended December 31, 2023): SCHEDULE OF STOCK OPTION ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 317,394 $ 38.40 7.57 $ — Granted 7,760 $ 5.30 — $ — Cancelled/forfeited ( 84,384 ) $ 39.25 — $ — Exercised — $ — — $ — Outstanding at December 31, 2022 240,770 $ 37.04 6.42 $ — Granted — $ — — $ — Cancelled/forfeited ( 61,769 ) $ 32.59 — $ — Exercised — $ — — $ — Outstanding at December 31, 2023 179,001 $ 38.58 6.83 $ 3 Exercisable 135,271 $ 38.49 6.64 $ 1 Unvested 43,730 $ 38.85 7.43 $ 2 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, 2023, the total compensation cost related to non-vested option awards not yet recognized was $ 1.4 million with a weighted average remaining vesting period of 1.3 years. As of December 31, 2023, there are no options outstanding under the 2005 Incentive Plan. Further information regarding options outstanding under the 2015 Incentive Plan as of December 31, 2023 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 20,240 8.0 $ 16.52 10,117 7.9 $ 17.47 25.50 47.00 106,081 6.5 33.45 88,874 6.3 33.09 54.50 58.50 52,480 7.2 56.98 36,080 7.2 56.98 164.75 183.50 200 5.1 164.75 200 5.1 164.75 179,001 135,271 F- 24 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, 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 Granted 1,958,159 $ 3.99 Cancelled/forfeited ( 56,398 ) $ 4.32 Vested ( 270,550 ) $ 5.59 Outstanding at December 31, 2023 2,448,169 $ 4.25 As of December 31, 2023, there was $ 7.9 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 2.3 years. The total fair value of restricted stock awards that vested was $ 1.5 million and $ 1.3 million during the years ended December 31, 2023 and 2022, respectively. NOTE 11 – 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 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) $ 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 cumulative 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 cumulative 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 has no t recognized any revenue during the years ended December 31, 2023 and 2022, respectively based on event-based-milestone payments. The Company has no contract assets as of December 31, 2023 and 2022. As of December 31, 2023 and 2022, the Company does not have any contract liabilities as a result of this transaction. F- 25 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, including intellectual property related to 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 cumulative 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 in event-based milestone payments until such time that it is probable that a significant cumulative 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 $ 3.5 million and $ 1.0 million in revenue during the years ended December 31, 2023 and 2022. The revenue recognized was related to clinical milestones achieved by our sublicensor as per the sublicense agreement noted above. As of December 31, 2023 and 2022, the Company does not have any contract assets or contract liabilities as a result of this transaction. 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, 2023 and 2022, the Company does not have any contract assets or contract liabilities as a result of this transaction. F- 26 NOTE 12 – 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 ($ 22,500 in 2023 and $ 20,500 in 2022 for employees who are under age 50 and $ 30,000 in 2023 and $ 27,000 in 2022 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 for the years ended December 31, 2023 and 2022. NOTE 13 – INCOME TAXES Income tax expense differs from the statutory amounts for each of the following years (in thousands): SCHEDULE OF INCOME TAX EXPENSE 2023 2022 For the year ended December 31, 2023 2022 Income taxes at U.S. statutory rate $ ( 11,379 ) $ ( 8,336 ) State tax, net of federal benefit ( 242 ) — Research and development credit ( 1,137 ) — Valuation allowance 8,687 9,539 Change in fair value of warrant liabilities 2,456 — Expired tax losses and credits 1,503 — Expenses not deductible 112 ( 1,203 ) Total tax expense $ — $ — F- 27 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 2023 2022 For the year ended December 31, 2023 2022 Deferred tax assets (liabilities): Net operating loss carryforwards $ 78,698 $ 75,544 General business credit carryforwards 4,752 4,497 State credits 2,780 2,780 Property, equipment and goodwill 887 380 Stock options 11,983 10,797 Intangible assets 615 612 Accruals 347 211 Capitalized research and development 8,843 5,480 Other 83 — Gross deferred tax assets 108,988 100,301 Valuation allowance ( 108,988 ) ( 100,301 ) Net deferred taxes $ — $ — Net operating Loss and Other Carryforwards As of December 31, 2023, the Company had $ 373.9 million of U.S. federal net operating loss carryforwards and $ 4.7 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 2024 $ 8,711 $ 287 2025 2,370 182 2026 7,160 72 2027 9,977 93 2028 6,886 141 Thereafter 73,552 3,977 $ 108,656 $ 4,752 On December 22, 2017, the “Tax Cuts and Jobs Act” was signed into law. The tax reform has the following effects on the Company: (1) permanently reduces the maximum corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017, (2) allows temporary 100% expensing for certain business assets and property placed in service after September 27, 2018 and before January 1, 2023, (3) disallows NOL carrybacks but allows for the indefinite carryforward of those NOLs which applies to losses arising in tax years beginning after December 31, 2018 and, (4) limits NOL deductions for each year equal to the lesser of the available carryover or 80% of a taxpayer’s pre-NOL deduction taxable income. This applies to losses arising in tax years ending on or after December 31, 2017. As of December 31, 2023 and 2022, the Company has concluded that it is more likely than not that the Company will not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in equity ownership of greater than 50% within a three-year period results in an annual limitation on the Company’s ability to utilize its NOL carryforwards created during the tax periods prior to the change in ownership. The Company has not completed an ownership change analysis pursuant to Section 382. Because the Company has incurred cumulative net operating losses since inception, all tax years remain open to examination by U.S. federal and state income tax authorities. F- 28 As of December 31, 2023, the Company had $ 265.2 million of U.S. federal 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. The Company also has $ 3.6 million of state net operating loss carryforwards in varying amounts depending on the different state tax laws. 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. The Company has not performed a study to determine whether or not there is such a limitation. Valuation Allowance At December 31, 2023 and 2022, the Company maintained a full valuation allowance on its deferred tax assets based on a history of cumulative losses. The Company will not record income tax benefits in the financial statements until it is determined that it is more likely than not that the Company will generate sufficient taxable income to realize the deferred income tax assets. In 2023, the valuation allowance increased by approximately $ 8.7 million. In 2022, the valuation allowance increased by approximately $ 9.5 million. Unrecognized Tax Benefits At December 31, 2023 and 2022, the Company had no reserves for unrecognized tax benefits. The Company and its subsidiaries are subject to taxation in the United States. The Company is subject to U.S. federal and state examinations for 2020 and forward, and 2019 and forward, respectively. However, net operating losses are subject to audit in any tax year in which those losses are utilized, notwithstanding the year of origin. NOTE 14 – 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, 2023 and 2022, there was no litigation against the Company. NOTE 15 – SUBSEQUENT EVENTS Loan and Security Agreement On January 8, 2024 (the “Closing Date”), the Company entered into a Loan and Security Agreement (the “Agreement”) with Avenue Venture Opportunities Fund, L.P., a Delaware limited partnership, as administrative agent and collateral agent (“Avenue” and the “Agent”) and Avenue Venture Opportunities Fund II, L.P. , a Delaware limited partnership (“Avenue 2” and, together with Avenue, the “Lenders”). Also on January 8, 2024, the Company entered into a Supplement to the Agreement (collectively with the Agreement, the “Loan Agreement”) with the Agent and the Lenders. The Loan Agreement provides for senior secured term loans (the “Loans”) in an aggregate principal amount up to $ 50 million, with (i) a committed tranche of $ 20 million advanced on the Closing Date (“Tranche 1”), (ii) a committed tranche of up to $ 10 million which may be advanced upon the request of the Company between June 30, 2024 and September 30, 2024, subject to the Company obtaining FDA approval of pz-cel in recessive dystrophic epidermolysis bullosa, with the issuance of a Priority Review Voucher (“Tranche 2”), and (iii) a discretionary tranche of up to $ 20 million which may be advanced between March 31, 2025 and March 31, 2026 (the “Discretionary Tranche”) provided at the discretion of the Lenders. The Loans are due and payable on July 1, 2027 (the “Maturity Date”). The proceeds of the Loans are to be used for general corporate purposes. F- 29 The Loan principal is repayable in equal monthly installments beginning on April 8, 2025, with the possibility of deferring principal payments an additional nine to fifteen months contingent upon (i) the Company obtaining FDA approval of pz-cel in recessive dystrophic epidermolysis bullosa, with the issuance of a Priority Review Voucher and (ii) the Company raising $ 90 million of cumulative equity and/or non-dilutive capital subsequent to the Closing Date. The Loans bear interest at a rate per annum (subject to increase during an event of default) equal to the greater of (i) the prime rate, as published by the Wall Street Journal from time to time, plus 5.00 % and (ii) 13.50 %. The Company may, subject to certain parameters, voluntarily prepay the Loans, in whole, at any time. If prepayment occurs on or before the one-year anniversary of the Closing Date, the Company is required to pay a prepayment fee equal to 3.00% of the principal amount of the Loans prepaid; if prepayment occurs after the one-year anniversary of the Closing Date and on or before the two-year anniversary of the Closing Date, the Company is required to pay a fee equal to 2.00% of the principal amount of the Loans; if prepayment occurs after the two-year anniversary of the Closing Date, the Company is required to pay a fee equal to 1.00% of the principal amount of the Loans. A final payment fee of 5.00% of the principal amount of the funded Tranche 1, Tranche 2 Loans and Discretionary Tranche Loans is also due upon the Maturity Date or any earlier date of prepayment. The Company’s obligations under the Loan Agreement are secured by a pledge of substantially all of the Company’s assets. Pursuant to the Loan Agreement, the Company is subject to a financial covenant requiring the Company to maintain at all times $ 5 million in unrestricted cash. The Loan Agreement also contains affirmative and negative covenants customary for financings of this type that, among other things, limit the ability of the Company and its subsidiaries to (i) incur additional debt, guarantees or liens; (ii) pay dividends; (iii) enter into certain change of control transactions; (iv) sell, transfer, lease, license, or otherwise dispose of certain assets; (v) make certain investments or loans; and (vi) engage in certain transactions with related persons, in each case, subject to certain exceptions. The Loan Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which the Agent may accelerate all amounts outstanding under the Loans. Pursuant to the Supplement to the Loan and Security Agreement, Avenue also has the right to convert up to $ 3 million of the outstanding principal of the Loans into shares of Company common stock (the “Conversion Right”) at a price per share equal to 120 % of the exercise price of the Warrants (further discussed below) at any time while the Loans are outstanding, subject to certain terms and conditions, including ownership limitations. In addition, subject to applicable law and specified provisions set forth in the Supplement to the Loan and Security Agreement and solely to the extent permitted under applicable stock exchange rules without requiring stockholder approval, the Lenders may participate in certain equity financing transactions of the Company in an aggregate amount of up to $ 1 million on the same terms, conditions and pricing offered by the Company to other investors participating in such financing transactions (such right, the “Participation Right”). The Participation Right automatically terminates upon the earliest of (i) July 1, 2027, (ii) such time that the Lenders have purchased $1 million of the Company’s equity securities in the aggregate pursuant to the Participation Right, and (iii) the repayment in full of all of the obligations under the Loan Agreement. Warrants On the Closing Date and pursuant to the funding of Tranche 1 of the Loan Agreement, the Company issued to each of Avenue and Avenue 2 (collectively, the “Warrantholders”) warrants to purchase up to $ 480,000 and $ 1,920,000 worth of shares, respectively, of Company common stock (each, a “Warrant” and collectively, the “Warrants”). The Warrants expire on January 8, 2029 (the “Expiration Date”) and have an exercise price per share equal to the lesser of (i) $ 4.75 and (ii) the price per share of the Company’s next bona fide round of equity financing before September 30, 2024 in which the Company sells or issues shares of its common stock, excluding certain excluded issuances as defined in the Supplement. In addition, upon a change of control where the per share price of the Company common stock is less than or equal to two times that of the exercise price, the Warrantholders would be entitled to receive the shares of common stock underlying the Warrant without payment of the exercise price. The Warrantholders may exercise the Warrants at any time, or from time to time up to and including the Expiration Date, by making a cash payment equal to the exercise price multiplied by the quantity of shares. The Warrantholders may also exercise the Warrants on a cashless basis by receiving a net number of shares calculated pursuant to the formula set forth in the Warrants. The Warrants are subject to anti-dilution adjustments for stock dividends, stock splits, and reverse stock splits. F- 30