Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 – NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Background
Abeona
Therapeutics Inc., a Delaware corporation (together with our subsidiaries, “we,” “our,” “Abeona”
or the “Company”), is a clinical-stage biopharmaceutical company developing gene and cell therapies for life-threatening
rare genetic diseases. Our lead programs include EB-101, an autologous, gene-corrected cell therapy for recessive dystrophic epidermolysis
bullosa (“RDEB”); ABO-102, an adeno-associated virus (“AAV”)-based gene therapy for Sanfilippo syndrome
type A (“MPS IIIA”); and ABO-101, an AAV-based gene therapy for Sanfilippo syndrome type B (“MPS IIIB”).
We also are developing ABO-202 and ABO-201, which are AAV-based gene therapies for the CLN1 and CLN3 forms of Batten Disease,
respectively, ABO-401 for the treatment of cystic fibrosis, and ABO-5OX for the treatment of retinal diseases. In addition, we
are developing next-generation AAV-based gene therapy though our novel AIM™ capsid platform and internal AAV vector research
programs. Our efforts since inception have been principally devoted to research and development, resulting in significant losses.
Basis
of Presentation
The
condensed consolidated balance sheet as of September 30, 2019, the condensed consolidated statements of operations and stockholders’
equity for the three and nine months ended September 30, 2019 and 2018 and the condensed consolidated statements of cash flows
for the nine months ended September 30, 2019 and 2018, were prepared by management without audit. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, except as otherwise disclosed, necessary for the fair presentation
of the financial position, results of operations, and changes in financial position for such periods, have been made.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These interim financial
statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K
for the year ended December 31, 2018. The results of operations for the periods ended September 30, 2019 are not necessarily indicative
of the operating results that may be expected for a full year. The condensed consolidated balance sheet as of December 31, 2018
contains financial information taken from the audited Abeona consolidated financial statements as of that date.
As
of September 30, 2019, we had 6,697,980 options and 1,820,686 warrants that were not included in the EPS calculation as their
effect would be antidilutive. As of September 30, 2018, we had 5,999,544 options and 2,220,687 warrants that were not included
in the earnings per share calculation as their effect would be antidilutive.
Effective
January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers,
as amended (ASC 606). At year-end 2018, we determined that we should adjust the amounts originally reported for the quarters ended
March 31, 2018 and June 30, 2018 to correct for an error in the determination of the cumulative effect related to the adoption
of ASC 606 as of January 1, 2018. The adjusted amounts for March 31, 2018 reflect a $2,067,000 reduction in foundation revenues
and corresponding increases in the loss from operations and net loss of $2,067,000 and an increase in the diluted loss per share
of $0.04, as compared to the originally reported amounts. The adjusted amounts for June 30, 2018 reflect a $543,000 reduction
in foundation revenues and corresponding increases in the loss from operations and net loss of $543,000 and an increase in the
diluted loss per share of $0.01, as compared to the originally reported amounts.
Uses
and Sources of Liquidity
The
financial statements have been prepared on a going concern basis, which assumes the Company will have sufficient cash to pay its
operating expenses, as and when they become payable, for a period of at least 12 months from the date the financial report was
issued. Therefore, we believe it is appropriate to prepare the financial statements on a going concern basis.
As
of September 30, 2019, we had cash, cash equivalents and short-term investments of $47.9 million and net assets of $96.1 million.
For the nine months ended September 30, 2019, we had cash outflows from operations of $48.6 million.
In
early 2019, the Company implemented a multi-faceted program to seek sufficient liquidity through at least the end of 2020. This
program considered the possibility of accessing additional equity funding from current or new stockholders, out-licensing technology
and/or other assets, deferring and/or eliminating planned expenditures, restructuring operations and/or reducing headcount and
sales of assets. In September 2019, the Company announced that it has retained Jefferies LLC as its financial advisor to assist
with the review of strategic options focused on advancing the Company’s mission and maximizing stockholder value. In an
effort to unlock potential additional value, the Company initiated this more formal process to explore a broad range of strategic
alternatives including but not limited to the partnering of its various clinical and pre-clinical programs, or a sale or merger
of the Company.
NOTE
2 – NEW ACCOUNTING STANDARD IMPLEMENTED
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, as amended (“ASC
842”), which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating
leases under previous guidance. We adopted the provisions of ASC 842 effective January 1, 2019 using the cumulative-effect adjustment
transition method, which applies the provisions of the standard as of the effective date without adjusting the comparative periods
presented. As a result of the adoption, we recorded operating lease right-of-use assets of $8.9 million and operating lease liabilities
of $8.9 million. The adoption had an immaterial impact on our net assets as of January 1, 2019. In addition, we elected the package
of practical expedients permitted under the transition guidance within the new standard, which allowed us to carry forward the
historical lease classification.
Additional
information and disclosures required by this new standard are contained in Note 8.
NOTE
3 – SHORT-TERM INVESTMENTS
The
following table summarizes the available-for-sale investments held:
Description
|
|
September
30,
2019
|
|
|
December
31,
2018
|
|
U.S. government and agency
securities and treasuries
|
|
$
|
-
|
|
|
$
|
66,218,000
|
|
The
amortized cost of the available-for-sale investments is adjusted for amortization of premiums and accretion of discounts to maturity.
There were no material realized gains or losses recognized on the sale or maturity of available-for-sale investments during the
three and nine months ended September 30, 2019 and 2018.
NOTE
4 – LICENSED TECHNOLOGY
On
November 4, 2018, we entered into a license agreement with REGENXBIO to obtain rights to an exclusive worldwide license (subject
to certain non-exclusive rights previously granted for MPS IIIA), with rights to sublicense, to REGENXBIO’s NAV AAV9 vector
for the development and commercialization of gene therapies for the treatment of MPS IIIA, MPS IIIB, CLN1 Disease and CLN3 Disease.
In return for these rights, REGENXBIO received a guaranteed $20 million upfront payment, $10 million of which was paid on signing
of the agreement on November 4, 2018 and $10 million of which was originally required under the agreement to be paid by November
4, 2019. In addition, REGENXBIO will receive a total of $100 million in annual fees, payable upon the second through sixth anniversaries
of the agreement, $20 million of which is guaranteed and payable on November 4, 2020. REGENXBIO is also eligible to receive potential
commercial milestone payments of up to $60 million as well as royalties payable in the low double digits to low teens on net sales
of products incorporating the licensed intellectual property. The license is amortized over the life of the patent of eight years.
On
November 1, 2019, we entered into an amendment of the original license agreement. The amended agreement replaced the $10
million payment due on November 4, 2019 with a $3 million payment due on November 4, 2019 and an additional $8 million payment
due on April 1, 2020.
On
August 3, 2016, we announced that we entered into an agreement (the “EB Agreement”) with EB Research Partnership (“EBRP”)
and Epidermolysis Bullosa Medical Research Foundation (“EBMRF”) to collaborate on gene therapy treatments for EB.
The EB Agreement became effective August 3, 2016 on the execution of two licensing agreements with The Board of Trustees of Leland
Stanford Junior University (“Stanford”). On August 3, 2016, we recorded the issuance of 375,000 of our common shares
to each of EBRP and EBMRF and recorded licensed technology of $2.45 million, which was being amortized over 20 years. In connection
with an arbitration proceeding relating to the EB Agreement, on May 15, 2019, the arbitrator issued a decision in favor of the
Company requiring the Company to cancel any and all shares of its common stock issued to EBRP and EBMRF that were still in their
possession. As a result, we have recorded the return of 450,000 shares of our common stock and the reversal of the licensed technology
from our financial statements. The net of these transactions resulted in a non-cash charge to expense of $367,000 recorded during
the nine months ended September 30, 2019.
On
May 15, 2015, we acquired Abeona Therapeutics LLC, which had an exclusive license through Nationwide Children’s Hospital
to the AB-101 and AB-102 patent portfolios for developing treatments for patients with Sanfilippo Syndrome Type A and Type B.
The license is amortized over the life of the license of 20 years.
Licensed
technology consists of the following:
|
|
September 30,
2019
|
|
|
December
31,
2018
|
|
Licensed technology
|
|
$
|
42,606,000
|
|
|
$
|
44,859,000
|
|
Less accumulated
amortization
|
|
|
5,135,000
|
|
|
|
1,817,000
|
|
Licensed technology,
net
|
|
$
|
37,471,000
|
|
|
$
|
43,042,000
|
|
The
aggregate estimated amortization expense for intangible assets remaining as of September 30, 2019 is as follows:
2019, remainder
|
|
$
|
1,293,000
|
|
2020
|
|
|
5,167,000
|
|
2021
|
|
|
5,167,000
|
|
2022
|
|
|
5,167,000
|
|
2023
|
|
|
5,167,000
|
|
Thereafter
|
|
|
15,510,000
|
|
Total
|
|
$
|
37,471,000
|
|
Amortization
on licensed technology was $1,293,000 and $3,931,000 for the three and nine months ended September 30, 2019, respectively, and
$87,000 and $260,000 for the three and nine months ended September 30, 2018, respectively.
NOTE
5 – RESTRICTED CASH
Restricted
cash, which is reported within other assets and restricted cash on the condensed consolidated balance sheets, consists of cash
and cash equivalents held as collateral for a corporate credit card and office space in New York. As such, the cash and cash equivalents
are restricted in use.
NOTE
6 – FAIR VALUE MEASUREMENTS
We
calculate the fair value of our assets and liabilities that qualify as financial instruments and include additional information
in the notes to the consolidated financial statements when the fair value is different than the carrying value of these financial
instruments. The estimated fair value of receivables, prepaid expenses, other assets, accounts payable, accrued expenses, payable
to licensor and deferred revenue approximate their carrying amounts due to the relatively short maturity of these instruments.
U.S.
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
at the measurement date. This guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are as follows:
|
●
|
Level
1 – Quoted prices in active markets for identical assets or liabilities.
|
|
●
|
Level
2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities
in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data.
|
|
●
|
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar valuation
techniques that use significant unobservable inputs.
|
The
guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. We have 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.
Financial
assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2019 and December 31,
2018 are summarized below:
Description
|
|
September 30,
2019
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Gains/(Losses)
|
|
Non-recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed technology, net
|
|
$
|
37,471,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
37,471,000
|
|
|
$
|
(367,000
|
)
|
Goodwill
|
|
|
32,466,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,466,000
|
|
|
|
-
|
|
Description
|
|
December 31,
2018
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
Gains/(Losses)
|
|
Recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
66,218,000
|
|
|
$
|
-
|
|
|
$
|
66,218,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed technology, net
|
|
$
|
43,042,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
43,042,000
|
|
|
$
|
-
|
|
Goodwill
|
|
|
32,466,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,466,000
|
|
|
|
-
|
|
NOTE
7 – STOCK-BASED COMPENSATION
The
following table summarizes option-based compensation expense for the three and nine months ended September 30, 2019 and 2018:
|
|
For
the three months ended September 30,
|
|
|
For
the nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
972,000
|
|
|
$
|
1,012,000
|
|
|
$
|
3,013,000
|
|
|
$
|
2,756,000
|
|
General and administrative
|
|
|
854,000
|
|
|
|
1,487,000
|
|
|
|
2,594,000
|
|
|
|
4,316,000
|
|
Stock-based compensation
expense included in operating expense
|
|
|
1,826,000
|
|
|
|
2,499,000
|
|
|
|
5,607,000
|
|
|
|
7,072,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
|
1,826,000
|
|
|
|
2,499,000
|
|
|
|
5,607,000
|
|
|
|
7,072,000
|
|
Tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
1,826,000
|
|
|
$
|
2,499,000
|
|
|
$
|
5,607,000
|
|
|
$
|
7,072,000
|
|
We
estimate the fair value of each option award on the date of grant using the Black-Scholes option valuation model. We 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 – we estimate the volatility of our share price at the date of grant using a “look-back” period
which coincides with the expected term, defined below. We believe using a “look-back” period which coincides
with the expected term is the most appropriate measure for determining expected volatility.
|
|
●
|
Expected
term – we estimate the expected term using the “simplified” method, as outlined in Staff Accounting Bulletin
No. 107, “Share-Based Payment.”
|
|
●
|
Risk-free
interest rate – we estimate 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
– we use an expected dividend yield of zero because we have not declared or paid a cash dividend, nor do we have any
plans to declare a dividend.
|
We
used the following weighted-average assumptions to estimate the fair value of the options granted for the periods indicated:
|
|
For
the three months ended September 30,
|
|
|
For
the nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
|
103
|
%
|
|
|
109
|
%
|
|
|
108
|
%
|
|
|
109
|
%
|
Expected term
|
|
|
6.25
years
|
|
|
|
5.00
years
|
|
|
|
5.09
years
|
|
|
|
5.00
years
|
|
Risk-free interest rate
|
|
|
1.83
|
%
|
|
|
2.78
|
%
|
|
|
2.21
|
%
|
|
|
2.54
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The
following table summarizes the options granted for the periods indicated:
|
|
For
the three months ended September 30,
|
|
|
For
the nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Options granted
|
|
|
105,600
|
|
|
|
157,000
|
|
|
|
1,490,490
|
|
|
|
1,026,800
|
|
Weighted-average:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
$
|
2.58
|
|
|
$
|
14.45
|
|
|
$
|
6.53
|
|
|
$
|
14.38
|
|
Grant date fair
value
|
|
$
|
2.09
|
|
|
$
|
11.44
|
|
|
$
|
5.14
|
|
|
$
|
11.36
|
|
The
following table summarizes restricted common stock-based compensation expense for the three and nine months ended September 30,
2019 and 2018:
|
|
For
the three months ended September 30,
|
|
|
For
the nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
66,000
|
|
|
$
|
-
|
|
|
$
|
66,000
|
|
|
$
|
-
|
|
General and administrative
|
|
|
32,000
|
|
|
|
172,000
|
|
|
|
282,000
|
|
|
|
516,000
|
|
Stock-based compensation
expense included in operating expense
|
|
|
98,000
|
|
|
|
172,000
|
|
|
|
348,000
|
|
|
|
516,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
|
98,000
|
|
|
|
172,000
|
|
|
|
348,000
|
|
|
|
516,000
|
|
Tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based
compensation expense, net of tax
|
|
$
|
98,000
|
|
|
$
|
172,000
|
|
|
$
|
348,000
|
|
|
$
|
516,000
|
|
We
granted 376,625 shares of restricted common stock to employees during the three and nine months ended September 30, 2019. We did
not grant any restricted common stock to employees during the three and nine months ended September 30, 2018.
NOTE
8 – OPERATING LEASES
We
lease space under non-cancelable operating leases for manufacturing and laboratory facilities and administrative offices in Cleveland
as well as administrative offices in New York. The 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 also lease office space in Madrid, Spain as well as certain office equipment under operating leases, which
have a non-cancelable lease term of less than one year and therefore, we have elected the practical expedient to exclude these
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.
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 the lease payments.
Components
of lease cost are as follows:
|
|
Three
months ended
September 30,
2019
|
|
|
Nine
months ended
September
30, 2019
|
|
Operating lease cost
|
|
$
|
434,000
|
|
|
$
|
1,157,000
|
|
Variable lease cost
|
|
$
|
82,000
|
|
|
$
|
241,000
|
|
Short-term lease cost
|
|
$
|
32,000
|
|
|
$
|
113,000
|
|
The
following table presents information about the amount and timing of cash flows arising from operating leases as of September 30,
2019:
Maturity of lease liabilities:
|
|
|
|
2019, remainder
|
|
$
|
422,000
|
|
2020
|
|
|
1,699,000
|
|
2021
|
|
|
1,713,000
|
|
2022
|
|
|
1,727,000
|
|
2023
|
|
|
1,741,000
|
|
Thereafter
|
|
|
3,667,000
|
|
Total undiscounted operating lease payments
|
|
|
10,969,000
|
|
Less: imputed
interest
|
|
|
2,791,000
|
|
Present value
of operating lease liabilities
|
|
$
|
8,178,000
|
|
|
|
|
|
|
Balance
sheet classification:
|
|
|
|
|
Current portion of lease liability
|
|
$
|
1,696,000
|
|
Long-term lease
liability
|
|
|
6,482,000
|
|
Total operating
lease liabilities
|
|
$
|
8,178,000
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
Weighted-average remaining lease term
for operating leases
|
|
|
76
months
|
|
Weighted-average discount rate for operating
leases
|
|
|
9.6
|
%
|
NOTE
9 – COMMITMENTS AND CONTINGENCIES
On
January 18, 2018, William Mahon, a Company stockholder, served a demand upon the Company’s board of directors (the “Board”)
pursuant to Section 220 of the Delaware General Corporation Law (the “Demand”) seeking to inspect certain of the Company’s
books and records. Generally, the Demand’s stated purpose was to investigate allegedly excessive compensation awarded to
non-employee Board members for the fiscal years 2015–2017. The Board denied the allegations in the Demand, and agreed to
provide limited books and records to Mahon. On September 17, 2018, another Company stockholder, Francisco Dos Ramos, filed a stockholder
derivative complaint in the Delaware Chancery Court (the “Dos Ramos Action”) against Steven Rouhandeh, Frank Carsten
Thiel, Mark Alvino, Stefano Buono, Stephen Howell, Richard Van Duyne, and Todd Wider as defendants, and the Company as nominal
defendant (the “Dos Ramos Defendants”). Dos Ramos generally alleged that the Board breached its fiduciary duties,
were unjustly enriched, and committed corporate waste by approving allegedly excessive compensation to non-employee Board members
for the fiscal years 2015–2017. Dos Ramos generally sought disgorgement of the allegedly improper payments to the Board,
money damages, an order requiring corporate governance reforms, costs and attorneys’ fees. On November 28, 2018, Mahon filed
a stockholder derivative complaint (the “Mahon Action”) in the United States District Court for the District of Delaware
(the “District Court”) against Mark Ahn, Mark Alvino, Jeffrey Davis, Stephen Howell, Todd Wider, and Steven Rouhandeh,
as defendants, and the Company as a nominal defendant (“Mahon Defendants”). The allegations in the Mahon Action were
substantially similar to those set forth in his Demand, as well as those in the Dos Ramos Action. Mahon generally sought the disgorgement
of the allegedly improper payments to the Board, a constructive trust, money damages, costs and attorneys’ fees. On December
6, 2018, Mahon and the Mahon Defendants filed a joint motion for preliminary approval of settlement, along with a stipulation
of settlement (the “Stipulation”) intending to settle all claims asserted in the Mahon Action.
On
January 8, 2019, the District Court approved the parties’ notice of settlement, enjoining all Company stockholders from
commencing or further prosecuting any claims asserted in the Mahon Action, and scheduled a settlement approval hearing for May
1, 2019. On January 25, 2019, the Chancery Court entered an order staying the Dos Ramos Action until May 8, 2019—one week
after the May 1, 2019 settlement hearing in the Mahon Action. On May 2, 2019 the District Court entered an Order and Final Judgment
approving the Stipulation. On August 6, 2019, the plaintiff in the Dos Ramos Action filed a voluntary notice of dismissal. On
August 7, 2019, the Chancery Court entered an order of dismissal.
On
October 22, 2018, EB Research Partnership, Inc. (“EBRP”) served upon the Company a Request for Arbitration (the “Request”),
alleging that the Company was in breach of an Agreement executed in July 2016 (the “Agreement”) between and among
the Company, EBRP, and Epidermolysis Bullosa Medical Research Foundation (“EBMRF” and together with EBRP, “Claimants”).
EBRP alleged that Abeona had refused to lift trading restrictions on certain shares of Abeona common stock issued to EBRP, purportedly
in breach of the Agreement. On November 21, 2018, the Company filed an action in the United States District Court for the Southern
District of New York seeking a declaration that it was not required to arbitrate its dispute with EBRP on the basis that the Agreement
was void for lack of consideration. On February 4, 2019, the court granted Claimants’ motion to compel arbitration. EBMRF
was subsequently joined as a party to the arbitration. The parties submitted briefs to the arbitrator on March 18 and April 18,
2019. On May 15, 2019, the arbitrator issued a decision in favor of the Company (the “Final Award”). Specifically,
the Final Award provides that the Agreement is void for lack of consideration; that Claimants fraudulently induced Abeona to enter
into the Agreement; that Claimants cannot enforce the Agreement; that Claimants are not entitled to any relief under the Agreement;
that, in view of their status as charitable organizations, Claimants would not be required to repay to Abeona the value of Abeona
common stock they already sold; that the Company shall cancel any and all shares of Abeona common stock issued to Claimants that
were still in Claimants’ possession; and that, as the losing parties, Claimants must bear the costs and expenses of the
arbitration and Abeona’s costs and expenses.