Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our consolidated financial statements and related notes included in this Form 10-K. This discussion and analysis contains forward-looking statements, which involve risks and uncertainties. As a result of many factors, such as those described under "Forward-Looking Statements," "Risk Factors" and elsewhere in this Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.

OVERVIEW

We are a commercial-stage biopharmaceutical company developing cell and gene therapies for life-threatening diseases. On April 28, 2025, the FDA approved ZEVASKYN^® (prademagene zamikeracel) gene-modified cellular sheets, also known as ZEVASKYN^®, as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with RDEB, a serious and debilitating genetic skin disease. There is no cure for RDEB, and ZEVASKYN^® is the only FDA-approved product to treat RDEB wounds with a single application. ZEVASKYN^® was granted Orphan Drug and Rare Pediatric Disease designations by the FDA.

ZEVASKYN^® is manufactured at our current cGMP manufacturing facility in Cleveland, Ohio, and is made available through ZEVASKYN^® qualified treatment centers.

Our development portfolio also features adeno-associated virus ("AAV") based gene therapies designed to treat ophthalmic diseases with high unmet need using novel AIM™ capsids. Abeona's novel, next-generation AAV capsids are being evaluated to improve tropism profiles for a variety of devastating diseases.

Preclinical Pipeline

Our preclinical programs are investigating the use of novel AAV capsids in AAV-based therapies for serious genetic eye diseases, including ABO-504 for Stargardt disease, ABO-503 for X-linked retinoschisis ("XLRS") and ABO-505 for autosomal dominant optic atrophy ("ADOA"). We completed pre-Investigational New Drug Application ("pre-IND") meetings with the FDA regarding the preclinical development plans and regulatory requirements to support first-in-human trials.

Recent Developments

Since we resumed manufacturing operations in mid-January after a planned facility shutdown, a patient treatment has been completed, multiple biopsies have been collected for scheduled ZEVASKYN^® treatments in the coming weeks, and additional biopsies are scheduled.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2025 and December 31, 2024

		For the year ended December 31,								Change
($ in thousands)		2025				2024				$				%
Revenues:
Product revenue, net		$	2,420			$	-			$	2,420				100	%
License and other revenues			3,400				-				3,400				100	%
Total revenues			5,820				-				5,820				100	%
Costs and expenses:
Cost of sales			1,532				-				1,532				100	%
Royalties			1,893				-				1,893				100	%
Research and development			26,812				34,360				(7,548	)			(22	)%
Selling, general and administrative			65,031				29,851				35,180				118	%
Total costs and expenses			95,268				64,211				31,057				48	%
Loss from operations			(89,448	)			(64,211	)			(25,237	)			39	%
Interest income			5,556				4,246				1,310				31	%
Interest expense			(3,740	)			(4,208	)			468				(11	)%
Change in fair value of warrant and derivative liabilities			6,139				(755	)			6,894				(913	)%
Gain from sale of priority review voucher, net			152,366				-				152,366				100	%
Other income, net			410				1,194				(784	)			(66	)%
Income (loss) before income taxes			71,283				(63,734	)			135,017				(212	)%
Income tax expense			100				-				100				100	%
Net income (loss)		$	71,183			$	(63,734	)		$	134,917				(212	)%

Product revenue, net

On April 28, 2025, the FDA approved ZEVASKYN^® as the first and only autologous cell-based gene therapy for the treatment of wounds in adult and pediatric patients with RDEB. Product revenue, net, resulting from the sale of ZEVASKYN^®, for the year ended December 31, 2025 was $2.4 million. On December 8, 2025, we announced the first commercial patient treatment with FDA-approved ZEVASKYN^® at Lucile Packard Children's Hospital Stanford in Palo Alto, CA. There was no product revenue for the year ended December 31, 2024 as the approval by the FDA for ZEVASKYN^® did not occur until 2025.

License and other revenues

License and other revenues for the year ended December 31, 2025 was $3.4 million as compared to nil for the same period of 2024. The revenue in 2025 consists primarily of revenue resulting from achieving a clinical development milestone under a sublicense agreement we entered into with Taysha in October 2020 relating to an investigational AAV-based gene therapy for Rett syndrome. Additionally in 2025, we also recorded $0.4 million resulting from a third party exercising its option to license certain of our AAV capsids. There was no license or other revenue in 2024 as no clinical development milestones were met in 2024.

Cost of sales

Cost of sales during the year ended December 31, 2025 was $1.5 million and primarily includes costs associated with the first commercial patient treatment with FDA-approved ZEVASKYN^® in December of 2025 and costs associated with the August 2025 production of a full batch of ZEVASKYN^® that could not be released due to technical issues that arose in implementing the rapid sterility lot release assay that was mandated by the FDA during BLA review. There was no cost of sales in the same period of 2024, as ZEVASKYN^® was approved by the FDA in April 2025.

Royalties

Total royalty expenses were $1.9 million for the year ended December 31, 2025, as compared to nil for the same period of 2024. The increase in was primarily due to royalties owed to our licensors resulting from the milestone due from Taysha related to Rett syndrome.

Research and development

Research and development expenses include, but are not limited to, payroll and personnel expenses, preclinical lab supplies, preclinical and development costs, clinical trial costs, preclinical manufacturing and manufacturing facility costs, costs associated with regulatory approvals, preclinical depreciation on lab supplies and manufacturing facilities, and preclinical consultant-related expenses.

Total research and development spending for the year ended December 31, 2025 was $26.8 million, as compared to $34.4 million for the same period of 2024, a decrease of $7.6 million. The reduction in expenses was primarily due to costs capitalized into inventory and engineering runs and other production costs that are no longer considered research and development due to FDA approval of ZEVASKYN^® in April of 2025.

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

	●	employee and consultant-related expenses;
	●	preclinical and developmental costs;
	●	clinical trial costs;
	●	the cost of acquiring and manufacturing clinical trial materials; and
	●	costs associated with regulatory approvals.

Selling, general and administrative

Selling, general and administrative expenses primarily consist of payroll and personnel costs, office facility costs, public reporting company related costs, professional fees (e.g., legal expenses), selling and other costs for commercial launch and other general operating expenses not otherwise included in research and development expenses. We expect our selling, general, and administrative costs to continue to increase as we expand our commercialization of ZEVASKYN^® and advance other product candidates toward potential regulatory approval.

Total selling, general and administrative expenses were $65.0 million for the year ended December 31, 2025, as compared to $29.9 million for the same period of 2024, an increase of $35.1 million. The increase in expenses was primarily due to increases in commercial costs of $2.3 million, related to our continued commercialization efforts, increases in salaries and stock-based compensation of $18.6 million due to new hires, and $4.8 million of costs related to engineering runs with the remainder due to other commercial costs upon FDA approval in April of 2025.

Interest income

Interest income was $5.6 million for the year ended December 31, 2025, as compared to $4.2 million in the same period of 2024. The increase resulted from higher earnings on short-term investments driven by increased average short-term investment balances.

Interest expense

Interest expense was $3.7 million for the year ended December 31, 2025, as compared to $4.2 million in the same period of 2024. Interest expense was due to the credit facility we entered into in January 2024 and decreased as a result of the July 2025 amendment to the credit facility reducing the interest rate for the senior secured term loan thereunder from 13.5% to 11.75%.

Change in fair value of warrant and derivative liabilities

We issued stock purchase warrants that are required to be classified as a liability and valued at fair market value at each reporting period. In addition, the conversion feature in our loan agreement is required to be classified as a liability and valued at fair market value at each reporting period.

The change in fair value of warrant liabilities resulted in a gain of $6.1 million for the year ended December 31, 2025. The gain in the fair value of warrant liabilities was primarily due to the decrease in our stock price as of December 31, 2025 compared to December 31, 2024 and to the shorter expected term period over period.

The change in fair value of warrant and derivative liabilities was a loss of $0.8 million for the year ended December 31, 2024. The loss on the fair value of warrant and derivative liabilities was primarily due to the increase in our stock price year over the year offset by a reduced term of each of the warrants and derivative liabilities. At September 30, 2024, the conversion feature in our loan agreement no longer met the criteria of a derivative liability, and the derivative liability was reclassified to equity.

Gain from sale of priority review voucher, net

In May 2025, we sold our PRV awarded to us following the FDA approval of ZEVASKYN^®. We received gross proceeds of $155.0 million during the year ended December 31, 2025 and recognized a gain from the PRV sale of $152.4 million, net of transaction costs of $2.6 million, as it did not have a carrying value at the time of sale.

Other income, net

Other income, net was $0.4 million for the year ended December 31, 2025, as compared to $1.2 million in the same period of 2024. The change was primarily a result of the refundable job creation tax credit of $0.5 million received in 2024 that was not received in 2025.

Income tax expense

We recorded a current income tax expense of $0.1 million for the year ended December 31, 2025. We did not record an income tax expense for the year ended December 31, 2024 as we generated sufficient tax losses, after consideration of discrete items. The current income tax expense for the year ended December 31, 2025 was primarily driven by pre-tax income from the gain on sale of the PRV.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows for the Years Ended December 31, 2025 and 2024

		For the year ended December 31,
($ in thousands)		2025				2024
Total cash, cash equivalents and restricted cash (used in) provided by:
Operating activities		$	(76,326	)		$	(56,015	)
Investing activities			105,028				(39,240	)
Financing activities			26,040				104,139
Net increase in cash, cash equivalents and restricted cash		$	54,742			$	8,884

Operating activities

Net cash used in operating activities was $76.3 million for the year ended December 31, 2025, primarily comprised of our net income of $71.2 million, offset by decreases in operating assets and liabilities of $5.4 million, the $152.4 million gain on sale of priority review voucher for which the cash proceeds are recorded in investing activities, and net non-cash charges of $10.2 million. Non-cash charges consisted primarily of $6.1 million of gain as a result of the change in fair value of warrant and derivative liabilities, $10.8 million of stock-based compensation and $2.5 million of depreciation and amortization.

Net cash used in operating activities was $56.0 million for the year ended December 31, 2024, primarily comprised of our net loss of $63.7 million and decreases in operating assets and liabilities of $4.4 million, partially offset by net non-cash charges of $12.1 million. Non-cash charges consisted primarily of $0.8 million of the change in fair value of warrant and derivative liabilities, $6.6 million of stock-based compensation, $1.5 million of non-cash interest expense and $2.0 million of depreciation and amortization.

Investing activities

Net cash provided by investing activities was $105.0 million for the year ended December 31, 2025, primarily comprised of net proceeds from sale of priority review voucher of $152.4 million, proceeds from maturities of short-term investments of $167.3 million, offset by purchases of short-term investments of $206.6 million and capital expenditures of $8.0 million.

Net cash used in investing activities was $39.2 million for the year ended December 31, 2024, primarily comprised of purchases of short-term investments of $157.0 million and capital expenditures of $2.4 million, partially offset by proceeds from maturities of short-term investments of $120.2 million.

Financing activities

Net cash provided by financing activities was $26.0 million for the year ended December 31, 2025, primarily comprised of proceeds of $17.3 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and proceeds of $8.8 million from the exercise of stock purchase warrants.

Net cash provided by financing activities was $104.1 million for the year ended December 31, 2024, primarily comprised of proceeds of $70.2 million in net proceeds from our May 2024 underwritten offering, $15.5 million from open market sales of common stock pursuant to the ATM Agreement (as defined below) and net proceeds of $19.0 million from our credit facility entered into in January 2024.

We have historically funded our operations primarily through our sale of equity securities, our most recent gain on sale of our PRV, and strategic collaboration arrangements.

Our principal source of liquidity is cash, cash equivalents, restricted cash and short-term investments, collectively referred to as our cash resources. As of December 31, 2025, our cash resources were $191.4 million. We believe that our current cash and cash equivalents, restricted cash and short-term investments are sufficient to fund operations through at least the next 12 months from the date of this annual report on Form 10-K. We may need to secure additional funding to carry out all of our planned research and development and potential commercialization 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.

We have an open market sale agreement with Jefferies LLC (as amended, the "ATM Agreement") pursuant to which we may sell from time to time, through Jefferies LLC, shares of our common stock for an aggregate sales price of up to $75.0 million. Any sales of shares pursuant to this agreement are made under our effective "shelf" registration statement on Form S-3 that is on file with and has been declared effective by the SEC. We sold 3,510,889 shares of our common stock under the ATM Agreement and received $17.3 million of net proceeds during the year ended December 31, 2025. We sold 2,825,954 shares of our common stock under the ATM Agreement and received $15.5 million of net proceeds during the year ended December 31, 2024. Under the ATM Agreement and as of December 31, 2025, we have remaining shares of our common stock for an aggregate sales price of up to $51.5 million.

Since our inception and excluding the gain on sale of our priority review voucher, 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 and commercialization efforts. Excluding the gain on sale of our priority review voucher, we have not been profitable since inception and to date have received limited revenues from the sale of products or licenses. As a result, we have incurred significant operating losses and negative cash flows from operations since our inception and anticipate such losses and negative cash flows will continue until ZEVASKYN^® can provide sufficient revenue for us to be profitable and generate positive cash flow.

We may incur losses for the next several years as we continue to invest in commercialization, 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.

Our future capital requirements and adequacy of available funds depend on many factors, including:

	●	the successful commercialization of ZEVASKYN®;
	●	the successful development, regulatory approval and commercialization of our cell and gene therapy and other product candidates;
	●	the ability to establish and maintain collaborative arrangements with corporate partners for the research, development, and commercialization of products;
	●	continued scientific progress in our research and development programs;
	●	the magnitude, scope and results of preclinical testing and clinical trials;
	●	the costs involved in filing, prosecuting, and enforcing patent claims;
	●	the costs involved in conducting clinical trials;
	●	competing technological developments;
	●	the cost of manufacturing and scale-up;
	●	the ability to establish and maintain effective commercialization arrangements and activities; and
	●	the successful outcome of our regulatory filings.

Due to uncertainties and certain of the risks described above, 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, 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 any available funds in suitable certificates of deposit, money market funds, government securities and investment-grade, interest-bearing securities. We do not invest in derivative financial instruments.

Contractual Obligations

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.

Operating lease amounts represent future minimum lease payments under our non-cancelable operating lease agreements. The total future payments for our operating lease obligations that had commenced as of December 31, 2025 were $6.2 million, of which $1.0 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

In addition, we are also party to other license agreements that 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, 2025 and, if satisfied, the timing of payment for these amounts was not reasonably estimable as of December 31, 2025. 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, certain contingent payments could become due upon sales of ZEVASKYN^® or any other developmental milestones for sub-licensed products related to such license agreements.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:

	●	it requires assumptions to be made that were uncertain at the time the estimate was made, and
	●	changes in the estimate or different estimates that could have been selected could have a material impact in our results of operations or financial condition.

While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results could differ from those estimates and the differences could be material.

While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to the judgements and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

Product Revenue

After FDA approval of ZEVASKYN^® in April 2025, we began commercial marketing and made our first product sale in Q4 2025. ASC 606, Revenue from Contracts with Customers, ("ASC 606") requires us to make estimates of variable consideration, including in our contracts, to be included in the transaction price. Revenue from product sales is recognized at the point in time that the customer obtains control of the product, which is typically upon the completion of a final quality inspection of the product at the qualified treatment centers. There is no obligation for the qualified treatment centers to use ZEVASKYN^®, and we have no contractual right to receive payment until the final quality inspection of the product at the qualified treatment centers, and transfer of control is completed.

Revenue from product sales is reduced at the time of recognition for payor rebates, co-payment assistance and prompt pay discounts, which are attributed to various commercial arrangements and government programs. Our contracts can include the right to receive an outcomes-based rebate and a subsequent treatment discount of ZEVASKYN^® under certain conditions. We have determined that the rebate and discount create a material right and we allocate the transaction consideration to ZEVASKYN^® and the material right on a relative standalone selling price basis. Transaction consideration allocated to the material right is deferred and recognized when either (a) the subsequent purchase of ZEVASKYN^® occurs, or (b) the time period during which a subsequent purchase of ZEVASKYN^® is made, expires.

As of December 31, 2025, our sales contained no material estimates as the applicable government rebate was known at the time of revenue recognition and no other material rights were present.

License and other revenues

We enter into license 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 payments 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.

If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize 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, we consider 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, we consider 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 obligations, we utilize 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. We evaluate the measure of progress each reporting period and, if necessary, adjust 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 we record in future periods.

Milestone Payments

At the inception of each arrangement that includes research or development milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimate 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 our control or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. We evaluate 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, we re-evaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjust our 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

We analyze our 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, we first determine 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.

Accrued Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued 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 advance 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. 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. To date, we have not made any material adjustments to our prior estimates of accrued expenses.

Share-Based Compensation Expense

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation-Stock Compensation ("ASC 718"), to account for stock-based compensation. We recognize compensation costs related to stock-based awards granted based on the estimated fair value of the awards on the date of grant.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the consolidated statements of operations and comprehensive income based on their grant-date fair values. Compensation expense for stock options, restricted stock awards and restricted stock units is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make assumptions. We estimate the fair value of its stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including: (i) the expected stock price volatility; (ii) the expected term of the award; (iii) the risk-free interest rate; and (iv) expected dividends.

We estimate the expected term of stock options using the "simplified" method as prescribed by SEC Staff Accounting Bulletin No. 107, Share-Based Payments, whereby the expected term equals the arithmetic mean of the vesting term and the original contractual term of the option. The risk-free interest rates are based on US Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid and does not expect to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur. Stock-based compensation expense recognized in the financial statements is based on awards for which service conditions are expected to be satisfied.

Stock option-based compensation expense recognized for the years ended December 31, 2025 and 2024 was $0.3 million and $1.1 million, respectively. Restricted stock-based compensation expense recognized for the years ended December 31, 2025 and 2024 was $10.5 million and $5.6 million, respectively.

Warrants

We determine the accounting and value of any issued warrants in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. We measure the value of any liability classified warrants on their issuance date based on their fair value using the Black-Scholes pricing model. Inputs used in the model include assumptions for expected volatility, risk-free interest rate, dividend yield and estimated expected term. Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of our control, including a potential change in control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of our warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company's statement of operations and comprehensive income (loss). In addition, the inputs we utilized to value our warrant liabilities are highly subjective. The assumptions used in calculating the fair value of our warrant liabilities represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, the fair value of the warrant liabilities may be materially different in the future.

The change in fair value of warrant liability recognized for the years ended December 31, 2025 and 2024 resulted in a gain of $6.1 million and a loss of $0.8 million, respectively.