ABEONA THERAPEUTICS INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

The following discussion should be read in conjunction with our consolidated financial statements and related notes included in this Form 10-K.

Abeona is a clinical-stage biopharmaceutical company developing cell and gene
therapies for life-threatening rare genetic diseases. Our lead clinical program
is EB-101, an autologous, gene-corrected cell therapy for recessive dystrophic
epidermolysis bullosa ("RDEB"), which is currently in the pivotal Phase 3
VIITAL™ clinical trial. Following a comprehensive portfolio review in early
2022, we have decided to focus our research and development resources on the
VIITAL™ readout while actively pursuing a potential commercialization partner
for EB-101 with the objective of reducing operating expenses and extending our
cash runway. As part of this portfolio prioritization, we have intensified our
pursuit of a strategic partnership to take over development activities for our
adeno-associated virus ("AAV")-based gene therapy ABO-102 for Sanfilippo
syndrome type A ("MPS IIIA") and we have discontinued development of our
AAV-based gene therapy ABO-101 for Sanfilippo syndrome type B ("MPS IIIB").



We plan to continue to develop AAV-based gene therapies designed to treat
ophthalmic and other diseases and next-generation AAV-based gene therapies using
the novel AIM™ capsid platform that we have exclusively licensed from the
University of North Carolina at Chapel Hill, and internal AAV vector research
programs.

MANAGEMENT REVIEW OF MAIN ACTIVITIES IN 2021

In 2021, we continued our mission of providing novel cell and gene therapies to
patients who currently have no approved treatment options as we continued to
advance the EB-101 pivotal study toward completion to support a U.S. Biologics
License Application (BLA) submission. At the same time, we continued to make
steady progress with other preclinical programs. Here is a recap of our recent
accomplishments.

EB-101 (autologous gene-edited cell therapy) for RDEB

In 2021, we continued to enroll patients in our pivotal Phase 3 VIITAL™ study
for our investigational product for recessive dystrophic epidermolysis bullosa
(RDEB), EB-101. Under the study protocol, the enrollment target is approximately
36 randomized large chronic wounds. To increase patient enrollment, we activated
a second clinical trial site in the VIITAL™ study. We achieved target enrollment
in the first quarter of 2022. We anticipate topline data readout in the third
quarter of 2022. We are focusing our research and development resources on the
VIITAL™ readout while actively pursuing a potential commercialization partner.
We are optimistic about EB-101's potential based on updated Phase 1/2a results
presented at various medical congresses.



We have continued to prepare our cGMP commercial facility in Cleveland, Ohio for
manufacturing EB-101 drug product to support our planned BLA filing. EB-101
study drug product for all our VIITAL study participants has been manufactured
at our Cleveland facility and we have now completed of the update to Module 3 of
the Investigational New Drug Application describing the in-house production of
both retroviral vector and the final drug product. Based on feedback from the
FDA, we believe that we have alignment with the FDA on the CMC requirements for
EB-101, including characterization and validation plans.

ABO-102 (AAV-based gene therapy) for MPS IIIA

As part of our portfolio prioritization in early 2022, we have intensified our
pursuit of a strategic partnership to take over development activities for
ABO-102. As part of the FDA's feedback on the Statistical Analysis Plan in
January 2022, the FDA recommended that all participants be followed to an age of
at least 60 months, which would shift timing of the neurocognitive outcomes data
readout to late-2024/early-2025, as compared to our prior projection of the
second quarter of 2023.

ABO-101 (AAV-based gene therapy) for MPS IIIB

In 2021, we halted recruitment in our ABO-101 study and in March 2022we have decided to stop all further development activities of ABO-101.

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Preclinical Pipeline



While our clinical programs are currently focused on rare diseases, we intend to
address larger areas of unmet medical need in the future, and our preclinical
programs are investigating novel AAV capsids in five undisclosed ophthalmic
conditions each with estimated U.S. prevalence ranging from 5,000 to 15,000
patients. In 2021, we shared data from studies in non-human primates that will
help to determine optimal routes of administration and believe we have made
significant progress toward measuring efficacy in the preclinical setting. We
have also generated appropriate mouse models, produced recombinant capsids, and
started dosing mice in proof-of-concept studies that we hope will yield data
beginning in mid-2022 to support pre-IND meetings with the FDA.

IMPACT OF THE COVID-19 PANDEMIC ON OUR BUSINESS

We continue to monitor the impact of the COVID-19 pandemic on our business and
take appropriate actions to manage our spending activities and preserve our cash
resources. While there have been vaccines developed and administered, and the
spread of COVID-19 may eventually be contained or mitigated, we cannot predict
the timing of vaccine adoption or roll-out globally or the efficacy of such
vaccines, including against variants that emerge, and we do not yet know how
businesses and our partners will operate in a post COVID-19 environment. While
we are unable to determine or predict the extent, duration or scope of the
overall impact the COVID-19 pandemic will have on our business, operations,
financial condition or liquidity, we believe it is important to keep our
stakeholders informed about how our response to COVID-19 is progressing and how
our operations and financial condition may change.



The extent of the impact of the COVID-19 pandemic on our business, operations,
and clinical trials continues to evolve and will depend on certain developments,
including: (i) the duration of the declared health emergencies; (ii) future
actions taken by governmental authorities and regulators with respect to the
pandemic, including reinstituting state and local lockdowns; (iii) the impact on
our partners, collaborators, and suppliers; and (iv) actions being taken by us
in response to this crisis. We remain dedicated to communicating regularly and
openly with our stakeholders as more information becomes available, including
updates on material changes to prior guidance as we continue to follow
applicable government, regulatory and institutional guidelines.



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RESULTS OF OPERATIONS

Comparison of completed exercises December 31, 2021 and December 31, 2020

                                 For the years ended December 31,                    Change
                                     2021                  2020                $                 %
Revenues:
License and other revenues     $       3,000,000       $  10,000,000     $  (7,000,000 )            -70 %
Total revenues                         3,000,000          10,000,000        (7,000,000 )            -70 %

Expenses:

Research and development              34,325,000          30,139,000         4,186,000               14 %
General and administrative            22,795,000          23,779,000          (984,000 )             -4 %
Depreciation and
amortization                           3,250,000           4,586,000        (1,336,000 )            -29 %
Goodwill impairment charge            32,466,000                   -       

32,466,000              N/A
Licensed technology
impairment charge                              -          32,916,000       (32,916,000 )           -100 %
Total expenses                        92,836,000          91,420,000         1,416,000                2 %

Loss from operations                 (89,836,000 )       (81,420,000 )       8,416,000              -10 %

Gain on settlement with
licensor                               6,743,000                   -         6,743,000              N/A
PPP loan payable forgiveness
income                                 1,758,000                   -         1,758,000              N/A
Interest and miscellaneous
income                                    69,000           1,301,000        (1,232,000 )            -95 %
Interest and other expense            (3,670,000 )        (4,115,000 )     

   445,000              -11 %
Net loss                       $     (84,936,000 )     $ (84,234,000 )   $    (702,000 )              1 %

N/A – not applicable or not significant.

License and other revenues



License and other revenues for the year ended December 31, 2021 were $3.0
million, as compared to $10.0 million for the same period of 2020. The revenue
in 2021 resulted from a clinical milestone achieved in December 2021 under a
sublicense agreement we entered into with Taysha Gene Therapies ("Taysha") in
August 2020 for ABO-202, an AAV gene therapy for CLN1 disease (also known as
infantile Batten disease). The revenue in 2020 resulted from (i) the
aforementioned sublicense agreement with Taysha along with an inventory purchase
agreement we entered into with Taysha in August 2020 for ABO-202 and (ii) a
sublicense agreement we entered into with Taysha in October 2020 for a gene
therapy for Rett syndrome and MECP2 gene constructs and regulation of their
expression. The sublicense agreements grant to Taysha worldwide exclusive rights
to intellectual property developed by scientists at the University of North
Carolina at Chapel Hill, the University of Edinburgh and us, and our know-how
relating to the research, development and manufacture of the gene therapies

for
CLN1 and Rett syndrome.

The sublicense agreements for CLN1 and Rett include additional event-based
milestone payments, sales-based milestone payments and other royalty-based
payments based on net sales. We will recognize revenue for these payments at the
later of (i) when the related event or sales occur, or (ii) when the performance
obligation has been satisfied.



Research and development

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.

Total research and development expenses for the year ended December 31, 2021 has been
$34.3 millioncompared to $30.1 million for the same period of 2020, an increase of $4.2 million. The increase in expenses is mainly due to:

? increased clinical and development work for our cell and gene therapy product

candidates and other related costs of $3.2 million;

? increase in salary and related costs of $0.4 million; and

? increase in other costs of $0.6 million.

We expect our research and development activities to continue as we attempt to
advance our product candidates towards potential regulatory approval reflecting
costs associated with the following:

? employee and consultant expenses;

? preclinical and development costs;

? the costs of clinical trials;

? the cost of acquiring and manufacturing clinical trial materials; and

? costs associated with regulatory approvals.

General and administrative



General and administrative expenses primarily consist of personnel, contract
personnel, personnel-related expenses to support our administrative and
operating activities, facility costs and professional expenses (i.e., legal
expenses) and investor relations fees. We expect our general and administrative
costs to continue as we seek potential regulatory approval and potential
commercialization of our product candidates.



Total general and administrative expenses were $22.8 million for the year ended
December 31, 2021, as compared to $23.8 million for the same period of 2020, a
decrease of $1.0 million. The decrease in expenses was primarily due to:

? reduction in salary and related costs of $3.3 million resulting from the break

costs $1.3 million recorded in 2020 and a decrease in compensation costs of $2.0

million due to the reduction in general and administrative staff in 2021; partially

offset by

? increase in non-cash stock-based compensation of $0.7 million;

? increase in professional fees $1.4 million; and

? increase in other costs of $0.2 million.

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Depreciation and amortization

Depreciation and amortization was $3.3 million for the year ended December 31,
2021, as compared to $4.6 million for the same period in 2020, a decrease of
$1.3 million. The decrease was driven by decreased amortization expense of $1.3
million on licensed technology in 2021, as compared to 2020, due to the
write-off of the REGENXBIO licensed technology in the first quarter of 2020.



Goodwill impairment charge



Goodwill impairment charge was $32.5 million for the year ended December 31,
2021, as compared to nil in the same period of 2020. As of year-end 2021, the
carrying value of our net assets was determined to exceed the fair value of our
net assets, and therefore, we recorded a goodwill impairment charge of $32.5
million.

Licensed Technology Depreciation Charges

Our license agreement with REGENXBIO terminated on May 2, 2020. Since our
impairment testing indicated that the carrying value of the license agreement
with REGENXBIO exceeded its fair value, we recorded a $32.9 million non-cash
impairment charge during the year ended December 31, 2020.

Gain on settlement with licensor

Gain on settlement with licensor was $6.7 million for the year ended December
31, 2021, as compared to nil in the same period of 2020. On November 12, 2021,
we entered into a Settlement Agreement with REGENXBIO to resolve all current
disputes between the parties. As of December 31, 2021, we have recorded the
payable to licensor in the balance sheet based on the present value of the
remaining payments due to REGENXBIO under the Settlement Agreement. The
accounting for the Settlement Agreement resulted in a $6.7 million gain on
settlement with REGENXBIO during the year ended December 31, 2021.

PPP loan forgiveness income

Paycheck Protection Program ("PPP") loan payable forgiveness income was $1.8
million for the year ended December 31, 2021, as compared to nil in the same
period of 2020. In July 2021, we received notice from the SBA that our PPP loan
had been forgiven so the PPP loan payable was reversed during the year ended
December 31, 2021.

Interest and miscellaneous income

Interest and miscellaneous income was $0.1 million for the year ended December
31, 2021, as compared to $1.3 million of the same period in 2020. The decrease
resulted from lower earnings on short-term investments driven by lower interest
rates and a lower average balance of short-term investments.



Interest and other expense

Interest and other expenses were $3.7 million for the year ended December 31, 2021compared to $4.1 million for the same period of 2020. The decrease results mainly from interest accrued under the previous license agreement with REGENXBIO, the amount of which is discussed in note 4 of the notes to the consolidated financial statements in part II, point 8.

Net loss

Net loss for the year ended December 31, 2021 has been $84.9 millionor one $0.86
basic and diluted loss per common share compared to a net loss of $84.2 millionor one $0.91 basic and diluted loss per common share, for the same period in 2020.

Cash and capital resources

We have historically funded our operations primarily through sales of common
stock. The COVID-19 pandemic has negatively affected the global economy and
created significant volatility and disruption of financial markets. An extended
period of economic disruption could negatively affect our business, financial
condition, and access to sources of liquidity.



Our principal source of liquidity is cash, cash equivalents, restricted cash and
short-term investments. As of December 31, 2021 and 2020, our cash resources
were $50.9 million and $96.0 million, respectively. Following a comprehensive
portfolio review in early 2022, we have decided to focus our research and
development resources on the EB-101 program with the objective of reducing
operating expenses and extending our cash runway. As part of this portfolio
prioritization, we have intensified our pursuit of a strategic partnership to
take over development activities for our AAV-based gene therapy ABO-102 for MPS
IIIA and we have discontinued development of our AAV-based gene therapy ABO-101
for MPS IIIB. Based upon these current operating plans, our ability to access
additional financial resources and/or our financial flexibility to further
reduce operating expenses if required, we believe that we have sufficient
resources to fund operations through at least the next 12 months from the date
of this report on Form 10-K. We will need to secure additional funding beyond
the next 12 months to carry out all of our planned research and development
activities. If we are unable to obtain additional financing or generate license
or product revenue, the lack of liquidity and sufficient capital resources could
have a material adverse effect on our future prospects.



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                                                        For the years ended December 31,
                                                            2021                  2020
Total cash, cash equivalents and restricted cash
(used in) /provided by:
Operating activities                                  $     (65,665,000 )    $  (35,019,000 )
Investing activities                                         66,062,000         (83,714,000 )
Financing activities                                         24,861,000           1,936,000
Net increase/(decrease) in cash, cash equivalents
and restricted cash                                   $      25,258,000      $ (116,797,000 )




Operating activities

Net cash used in operating activities was $65.7 million for the year ended
December 31, 2021composed primarily of our net loss of $84.9 million and decrease in operating assets and liabilities of $18.3 millionpartially offset by net non-cash charges of $37.5 million.

Net cash used in operating activities was $35.0 million for the year ended
December 31, 2020composed primarily of our net loss of $84.2 millionpartially offset by an increase in operating assets and liabilities of $1.6 million and non-cash expenses net of $47.6 million.

Investing activities



Net cash provided by investing activities was $66.1 million for the year ended
December 31, 2021, primarily comprised of proceeds from maturities of short-term
investments of $90.4 million, partially offset by purchases of short-term
investments of $20.2 million and capital expenditures of $4.1 million.



Net cash used in investing activities was $83.7 million for the year ended
December 31, 2020, primarily comprised of purchases of short-term investments of
$170.5 million and capital expenditures of $1.3 million, partially offset by
proceeds from maturities of short-term investments of $88.1 million.



Financing activities



Net cash provided by financing activities was $24.9 million for the year ended
December 31, 2021, primarily comprised of proceeds of $17.4 million from the
issuance of common stock and warrants in a public offering, proceeds of $8.0
million from open market sales of common stock pursuant to the ATM Agreement (as
defined below) and proceeds of $0.8 million from the exercise of stock options,
partially offset by the payment of offering costs in a public offering of $1.5
million.



Net cash provided by financing activities was $1.9 million for the year ended
December 31, 2020, primarily comprised of proceeds from loan payable of $1.7
million and proceeds from the exercise of stock options of $0.2 million.



2021 Equity Offerings



In an underwritten public offering consummated on December 21, 2021, we issued
(1) 44,700,000 shares of common stock at $0.39 per share and (2) warrants to
purchase 44,700,000 shares of common stock with an exercise price of $0.39 per
warrant. The gross proceeds to us were approximately $17.5 million, before
deducting the underwriting discounts and commissions and estimated offering
expenses payable by us.



On August 17, 2018, we entered into an open market sale agreement with Jefferies
LLC (the "ATM Agreement"). Pursuant to the terms of the ATM Agreement, we are
able to sell from time to time, through Jefferies LLC, shares of our common
stock for an aggregate sales price of up to $150 million. Any sales of shares
pursuant to the ATM Agreement are made under an effective "shelf" registration
statement on Form S-3 that is on file with and has been declared effective by
the SEC. On November 19, 2021, we entered into an amendment to the ATM Agreement
(the "Amendment") in connection with the filing of a new shelf registration
statement on Form S-3 (File No. 333-256850) (the "Registration Statement"),
filed with the Securities and Exchange Commission (the "SEC") on June 7, 2021
and declared effective by the SEC on October 22, 2021. The Amendment amends the
ATM Agreement to reflect the filing of the new Registration Statement (due to
the prior Form S-3 (File No. 333-224867) expiring in June 2021).



We sold 3,671,794 shares of our common stock under the ATM Agreement and
received $8.1 million of net proceeds during the year ended December 31, 2021.
Cumulatively, as of December 31, 2021, we have sold an aggregate of 6,758,744
shares of our common stock under the ATM Agreement and received $25.0 million of
net proceeds.

Payments under a settlement agreement with REGENXBIO

As discussed above in Item 3. Legal Proceedings, we entered into the Settlement
Agreement with REGENXBIO on November 12, 2021. Pursuant to the Settlement
Agreement, we paid $20.0 million to REGENXBIO in November 2021, and are required
to pay (i) $5.0 million on the first anniversary of the effective date of the
Settlement Agreement and (ii) $5.0 million on the earlier of (a) the third
anniversary of the effective date of the Settlement Agreement, or (b) the
closing of a Strategic Transaction, as defined in the Settlement Agreement.



Since our inception, we have incurred negative cash flows from operations and
have expended, and expect to continue to expend, substantial funds to complete
our planned product development efforts. We have not been profitable since
inception and to date have received limited revenues from the sale of products.
We expect to incur losses for the next several years as we continue to invest in
product research and development, preclinical studies, clinical trials, and
regulatory compliance and cannot provide assurance that we will ever be able to
generate sufficient product sales or royalty revenue to achieve profitability on
a sustained basis, or at all.



If we raise additional funds by selling additional equity securities, the
relative equity ownership of our existing investors will be diluted, and the new
investors could obtain terms more favorable than previous investors. If we raise
additional funds through collaborations, strategic alliances, or licensing
arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs, or product
candidates or grant licenses on terms that may not be favorable to us. If we are
unable to raise additional funds through equity or debt financing when needed,
we may be required to delay, limit, or terminate our product development
programs or any future commercialization efforts or grant rights to develop and
market product candidates to third parties that we would otherwise prefer to
develop and market ourselves.



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We are carefully and continually reassessing key business activities and all
associated spending decisions. Nonetheless, we are spending necessary funds on
manufacturing activities and preclinical studies and clinical trials of
potential products, including research and development with respect to our
acquired and developed technology. Our future capital requirements and adequacy
of available funds depend on many factors, including:

? the impact on our business, operations and clinical programs of COVID-19

pandemic and the related effects on the we and global economy;

? the successful development and commercialization of our cell and gene therapy

and other product candidates;

? the ability to establish and maintain collaborative agreements with companies

partners for product research, development and commercialization;

? the pursuit of scientific progress in our research and development programs;

? the size, scope and results of preclinical trials and clinical trials;

? costs related to the filing, prosecution and enforcement of patent claims;

? costs related to conducting clinical trials;

? competing technological developments;

? the cost of manufacturing and scaling;

? the ability to establish and maintain effective marketing arrangements

and activities; and

? the success of our regulatory filings.

Due to uncertainties and certain of the risks described above, including those
relating to the COVID-19 pandemic, our ability to successfully commercialize our
product candidates, our ability to obtain applicable regulatory approval to
market our product candidates, our ability to obtain necessary additional
capital to fund operations in the future, our ability to successfully
manufacture our products and our product candidates in clinical quantities or
for commercial purposes, government regulation to which we are subject, the
uncertainty associated with preclinical and clinical testing, intense
competition that we face, market acceptance of our products, the potential
necessity of licensing technology from third parties and protection of our
intellectual property, it is not possible to reliably predict future spending or
time to completion by project or product category or the period in which
material net cash inflows from significant projects are expected to commence. If
we are unable to timely complete a particular project, our research and
development efforts could be delayed or reduced, our business could suffer
depending on the significance of the project and we might need to raise
additional capital to fund operations, as discussed in the risks above.

We plan to continue our policy of investing available funds in appropriate certificates of deposit, money market funds, government securities and investment grade interest bearing securities. We do not invest in financial derivative instruments.

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Contractual Obligations

The following table summarizes our main contractual obligations as of the payment due date by period at December 31, 2021:

                                                      Payments Due by Period
                      Less than 1
                          year          1 to 3 years       4 to 5 years       After 5 years         Total
Operating leases      $  1,818,000     $    3,713,000     $    2,767,000     $     3,663,000     $ 11,961,000

Payable to licensor      5,000,000          5,000,000                  -   

               -       10,000,000




We enter into agreements in the normal course of business with clinical research
organizations for clinical trials and clinical manufacturing organizations for
supply manufacturing and with vendors for preclinical research studies and other
services and products for operating purposes. These contractual obligations are
cancelable at any time by us, generally upon prior written notice to the vendor,
and are thus not included in the contractual obligations table.

Operating lease amounts represent future minimum payments under our non-cancellable operating leases. The above minimum rental payments do not include common area maintenance fees or property taxes.

As noted above, on November 12, 2021, we entered into a Settlement Agreement
with REGENXBIO to resolve all current disputes between the parties including the
aforementioned AAA arbitration and New York State Supreme Court action. In
accordance with the Settlement Agreement, we agreed to pay REGENXBIO a total of
$30 million, payable as follows: (1) $20 million payable that was paid in 2021
after execution of the Settlement Agreement, (2) $5 million on the first
anniversary of the effective date of the Settlement Agreement, and (3) $5
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, 2021, we have recorded
the payable to licensor in the contractual obligations as the two remaining
payments due to REGENXBIO under the Settlement Agreement.



In addition, we are also party to other license agreements, which include
contingent payments. However, contingent payments related to these license
agreements are not disclosed as the satisfaction of these contingent payments is
uncertain as of December 31, 2021 and, if satisfied, the timing of payment for
these amounts was not reasonably estimable as of December 31, 2021. Commitments
related to the license agreements include contingent payments that will become
payable if and when certain development, regulatory and commercial milestones
are achieved. During the next 12 months, we do not expect to make milestone
payments related to such license agreements.



Critical Accounting Estimates

The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the U.S. requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the
reporting period. In applying our accounting principles, we must often make
individual estimates and assumptions regarding expected outcomes or
uncertainties. As one might expect, the actual results or outcomes are often
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our estimates, judgments and assumptions are continually evaluated
based on available information and experience. Because of the use of estimates
inherent in the financial reporting process, actual results could differ from
those estimates.



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Leases



Effective January 1, 2019, we adopted the provisions of ASU 2016-02, Leases, as
amended ("ASC 842"). ASC 842 requires the recognition of lease assets and lease
liabilities by lessees for those leases classified as operating leases under the
previous guidance of ASC 840, Leases. We determine if an arrangement is a lease
at inception or when amended. Right-of-use lease assets represent our right to
use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. The classification of
our leases as operating or finance leases along with the initial measurement and
recognition of the associated right-of-use assets and lease liabilities is
performed at the lease commencement date or when amended. The measurement of
lease liabilities is based on the present value of future lease payments over
the lease term. As our leases do not provide an implicit rate, we use our
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 or lease
amendment and excludes lease incentives and initial direct costs incurred, as
applicable. Rent expense for our operating leases is recognized on a
straight-line basis over the lease term. We do not have any leases classified as
finance leases.

Our leases do not have significant rent escalation, holidays, concessions,
material residual value guarantees, material restrictive covenants or contingent
rent provisions. Our 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
we have elected the practical expedient to group lease and non-lease components
for all leases. We have elected the practical expedient to exclude short-term
leases from our right-of-use assets and lease liabilities.



Most leases include one or more options to renew. The exercise of lease renewal
options is typically at our sole discretion; therefore, the majority of renewals
to extend the lease terms are not included in our right-of-use assets and lease
liabilities as they are not reasonably certain of exercise. We regularly
evaluate the renewal options and when they are reasonably certain of exercise,
we include the renewal period in our lease term.



Licensed Technology



We maintain licensed technology on our consolidated balance sheet until either
the licensed technology agreement underlying it is completed or the asset
becomes impaired. When we determine that an asset has become impaired or we
abandon a project, we write down the carrying value of the related intangible
asset to its fair value and take an impairment charge in the period in which the
impairment occurs.

Generally, licensed technology is amortized over the life of the patent or the
agreement. We test our intangible assets for impairment on an annual basis, or
more frequently if indicators are present or changes in circumstance suggest
that impairment may exist. Events that could result in an impairment, or trigger
an interim impairment assessment, include the receipt of additional clinical or
nonclinical data regarding our drug candidate or a potentially competitive drug
candidate, changes in the clinical development program for a drug candidate or
new information regarding potential sales for the drug. In connection with each
annual impairment assessment and any interim impairment assessment, we compare
the fair value of the asset as of the date of the assessment with the carrying
value of the asset on our consolidated balance sheet.

We have reviewed the status of our discussions with REGENXBIO in March 2020 as a potential indicator of impairment in accordance with ASC 360-10-35-21. Our impairment test indicated that the carrying amount of the license agreement exceeded its fair value and we recorded an $32.9 million non-cash impairment charge in 2020.

In 2021, we have not compromised any licensed technology.

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Goodwill

From December 31, 2021 and 2020, we had zero goodwill and $32.5 millionrespectively, recorded in our Consolidated Balance Sheet.

In accordance with ASC 350 - Intangibles - Goodwill and Other, we test goodwill
for impairment on an annual basis and in the interim if events and circumstances
indicate that goodwill may be impaired. The events and circumstances that are
considered include business climate and market conditions, legal factors,
operating performance indicators and competition. Impairment of goodwill is
evaluated on a qualitative basis before calculating the fair value of the
entity. If the qualitative assessment suggests that impairment is more likely
than not, a quantitative impairment analysis is performed. The quantitative
analysis involves comparison of the fair value of the entity with its carrying
value. The valuation of an entity requires judgment. In making these judgments,
we evaluate the financial health of our business. Decreases in the value of our
common stock could cause the carrying value of the entity to exceed its fair
value. If the carrying amount of the entity exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess, limited to the
total amount of goodwill. If an event occurs that would cause a revision to the
estimates and assumptions used in analyzing the value of the goodwill, the
revision could result in a noncash impairment charge that could have a material
impact on the financial results.



We experienced a steep decline in our share price during the year ended December
31, 2021. We performed our annual goodwill impairment tested as of year-end 2021
and determined that the carrying value of our net assets exceeded fair value
using our market capitalization as a proxy for fair value. In accordance with
ASC 350, we recognized an impairment loss for that excess of carrying value over
fair value but limited to the total amount of goodwill recorded on our
consolidated balance sheet. As a result, we recorded a goodwill impairment
charge of $32.5 million during the year ended December 31, 2021.

We performed our annual goodwill impairment test at the end of 2020 and determined that the fair value of our net assets exceeded the carrying value. Accordingly, we have not impaired goodwill during the year December 31, 2020.

Revenue Recognition



Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with
Customers, as amended ("ASC 606"). Under ASC 606, we recognize revenue when our
customer obtains control of promised goods or services, in an amount that
reflects the consideration which we expect to receive in exchange for those
goods or services. To determine revenue recognition for arrangements that we
determine are within the scope of ASC 606, we perform the following five steps:
(i) identify the contract(s) with our 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) we satisfy a performance obligation.



Sublicense and Inventory Purchase Agreements Relating to CLN1 Disease: In August
2020, we 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 we had referred to as ABO-202.
Under the inventory purchase agreement, we sold to Taysha certain inventory and
other items related to ABO-202. We assessed these contracts at contract
inception and determined that, under ASC 606, the two contracts would be
combined and accounted for as a single contract, with a single performance
obligation. We 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 us and determined
that the license has significant stand-alone functionality. Furthermore, we have
no ongoing activities associated with the license to support or maintain the
license's utility. Based on this, we determined that the pattern of transfer of
control of the license to Taysha was at a point in time.



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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,
we evaluated whether the milestone conditions had been achieved and if it was
probable that a significant revenue reversal would not occur before recognizing
the associated revenue and determined that these milestone payments were not
within our 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, we fully constrained the $26.0 million of
event-based milestone payments until such time that it is probable that
significant revenue reversal would not occur. The sales-based milestone payments
and other royalty-based payments are based on a level of sales for which the
license is deemed to be the predominant item to which the royalties relate. We
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,
we have not recognized any sales-based or royalty revenue resulting from this
licensing arrangement.



Under this arrangement, we recognized $7.0 million of revenue during the year
ended December 31, 2020, which amount related solely to fixed consideration.
During the year ended December 31, 2021, Taysha achieved an event-based
milestone payment and, accordingly, we recognized $3.0 million of revenue. As of
December 31, 2021, we have a contract asset for $3.0 million but do not have any
contract liabilities as a result of this transaction. We collected the $3.0
million of cash in January 2022 in full satisfaction of the contract asset.



Sublicense Agreement Relating to Rett Syndrome: In October 2020, we entered into
a sublicense agreement with Taysha for a gene therapy for Rett syndrome and
MECP2 gene constructs and regulation of their expression. The agreement grants
Taysha worldwide exclusive rights to intellectual property developed by
scientists at the University of North Carolina at Chapel Hill, the University of
Edinburgh and us, and our 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.



We 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 us and determined
that the license has significant stand-alone functionality. Furthermore, we have
no ongoing activities associated with the license to support or maintain the
license's utility. Based on this, we 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. We evaluated
whether the milestone conditions have been achieved and if it is probable that a
significant revenue reversal would not occur before recognizing the associated
revenue. We determined that these milestone payments are not within our control
or the licensee's control, such as regulatory approvals, and are not considered
probable of being achieved until those approvals are received. Accordingly, we
have fully constrained the $26.5 million of event-based milestone payments until
such time that it is probable that significant revenue reversal would not occur.
The sales-based milestone payments and other royalty-based payments are based on
a level of sales for which the license is deemed to be the predominant item to
which the royalties relate. We 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, we have not recognized any
sales-based or royalty revenue resulting from this licensing arrangement.



Under this arrangement, we recognized $3.0 million of revenue during the year
ended December 31, 2020, which amount related solely to fixed consideration. We
did not recognize any related revenue during the year ended December 31, 2021.
As of December 31, 2021, we do not have any contract assets or contract
liabilities as a result of this transaction.



74







Foundation Revenues: Foundation revenues relate to a collaborative agreement
between nine Sanfilippo foundations to provide up to approximately $13.9 million
of grants to Abeona in installments for the advancement of our clinical stage
gene therapies for MPS IIIA and MPS IIIB, subject to the achievement of certain
milestones. We have assessed the ASC 606-10-25-27 criteria used to determine
whether foundation revenue should be recognized over time and determined that
our performance does not create an asset with an alternative use to the
foundations and we have an enforceable right to payment for performance
completed to date. We determined that the input method based on costs incurred
in accordance with ASC 606-10-55-20 would be the most appropriate method for
measuring progress. As a result, we have concluded that cash received upfront
from the foundations should be deferred on the balance sheet until the costs of
the activities as outlined in the manufacturing and clinical work plan are
incurred by installment as outlined in the agreement with the foundations.
Effectively, this matches the revenue up to the costs incurred by installment.
Should the aggregate cash received exceed the costs incurred by installment, the
excess of aggregate cash over costs will be deferred. We have foundation revenue
of $0.3 million recorded as deferred revenue on the balance sheet as of December
31, 2021 and 2020. In 2021 and 2020, we did not record any foundation revenues
since no milestones were achieved.

Accumulated research and development costs

As part of the process of preparing our consolidated financial statements, we
are required to estimate our accrued research and development expenses. This
process involves reviewing open contracts and purchase orders, communicating
with our personnel to identify services that have been performed on our behalf
and estimating the level of service performed and the associated costs incurred
for the services when we have not yet been invoiced or otherwise notified of the
actual costs. The majority of our service providers invoice us in arrears for
services performed, on a pre-determined schedule or when contractual milestones
are met; however, some require advanced payments. We make estimates of our
accrued expenses as of each balance sheet date in our consolidated financial
statements based on facts and circumstances known to us at that time. There may
be instances in which payments made to our vendors will exceed the level of
services provided and result in a prepayment of the clinical expense. If the
actual timing of the performance of services or the level of effort varies from
our estimate, we adjust the accrual or amount of prepaid expense accordingly.
Although we do not expect our estimates to be materially different from amounts
actually incurred, our understanding of the status and timing of services
performed relative to the actual status and timing of services performed may
vary and may result in us reporting amounts that are too high or too low in any
particular period. To date, we have not made any material adjustments to our
prior estimates of accrued research and development expenses.

Stock-based compensation expense

We account for share-based compensation expense in accordance with ASC 718,
Stock Based Compensation. We have two share-based compensation plans under which
incentive and qualified stock options and restricted shares may be granted to
employees, directors, and consultants. We measure the cost of the
employee/director/consultant services received in exchange for an award of
equity instruments based on the fair value for employees and directors and
vesting date fair value of the award for consultants. We use the Black-Scholes
option pricing model to determine the fair value of options as of the grant date
and the Hull White I lattice model as of any option repricing dates. The models
used to determine the fair value of options includes assumptions for expected
volatility, risk-free interest rate, dividend yield and estimated expected term.
We use the closing price of our common stock as quoted on Nasdaq to determine
the fair value of restricted stock. We account for forfeitures as they occur,
which may result in the reversal of compensation costs in subsequent periods as
the forfeitures arise.



Stock option-based compensation expense recognized for the years ended December
31, 2021 and 2020 was approximately $5.3 million and $5.9 million, respectively.
Restricted stock-based compensation expense recognized for the years ended
December 31, 2021 and 2020 was approximately $3.7 million and $2.3 million,
respectively.

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