AVENUE THERAPEUTICS INC

AVENUE THERAPEUTICS, INC

Notes to Consolidated Financial Statements

Note 1 —Organization, Plan of Business Operations

Avenue Therapeutics, Inc. (the “Company” or “Avenue”) was incorporated in Delaware on* February**9,* 2015, as a wholly owned subsidiary of Fortress Biotech, Inc. (“Fortress”) and completed its initial public offering in2017. Avenue is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of neurologic diseases. Avenue's current product candidates includeAJ201 for the treatment of spinal and bulbar muscular atrophy ("SBMA", also known as Kennedy's Disease), intravenous tramadol ("IV tramadol") for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders.

Baergic

On* May 11, 2022,the Company entered into a stock contribution agreement (the “Contribution Agreement”) with Fortress, pursuant to which Fortress agreed to transfer ownership of 100% of its shares (common and preferred) (the “Contributed Shares”) in Baergic Bio, Inc. ("Baergic") to the Company. Under the Contribution Agreement, Fortress also agreed to assign to Avenue certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement, by and between Fortress and Baergic, dated as of March 9, 2017,and Management Services Agreement, by and between Fortress and Baergic, dated as of March 9, 2017.Consummation of the transactions contemplated by the Contribution Agreement was subject to the satisfaction of certain conditions precedent, including, inter alia: (i) the closing of an equity financing by the Company resulting in gross proceeds of at least $7.5 million, (ii) the agreement by minority Avenue shareholder InvaGen Pharmaceuticals Inc. (“InvaGen”) to (A) have 100% of its shares in the Company repurchased by the Company and (B) terminate certain of the agreements to which it was party with the Company and/or Fortress in connection with InvaGen’s2019* equity investment in the Company, which would eliminate certain negative consent rights of InvaGen over the Company and restore certain rights and privileges of Fortress in the Company; and (iii) the sustained listing of Avenue’s common stock on The Nasdaq Capital Market.

The transaction expanded Avenue’s development portfolio within neuroscience. Evaluation and negotiation of the Contribution Agreement was overseen, and execution of the Contribution Agreement was approved, by special committees at the Avenue and Fortress levels, both of which exclusively comprised independent and disinterested directors of the respective companies’ boards. See Note4 below.

AJ201

On* February 28, 2023,the Company entered into a license agreement with AnnJi Pharmaceutical Co. Ltd ("AnnJi"), whereby the Company obtained an exclusive license (the "AnnJi License Agreement") from AnnJi to intellectual property rights pertaining to the molecule known asJM17,* which activatesNrf1 andNrf2, enhances androgen receptor degradation and underliesAJ201, a clinical product candidate currently in a Phase1b/2a clinical trial in the U.S. for the treatment SBMA. The study aims to evaluate the safety and clinical response ofAJ201 in patients suffering from SBMA.AJ201 has been granted Orphan Drug Designation (“ODD”) by the U.S. Food and Drug Administration ("FDA") for the indications of SBMA, Huntington’s Disease and Spinocerebellar Ataxia. The purchase and progress of the clinical development ofAJ201 to treat SBMA further expands Avenue's portfolio within neurologic diseases.

Reverse Stock Split

On* September 23, 2022,the Company filed a Certificate of Amendment (the “Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect (i) the1*-for-15 reverse stock split of the Company’s shares of common stock (“Reverse Stock Split”) and (ii) the reduction in number of the Company’s authorized shares of common stock from 50,000,000 to 20,000,000. As a result of the Reverse Stock Split, every 15 shares of Common Stock outstanding immediately prior to the effectiveness of the Reverse Stock Split were combined and converted intoone share of New Common Stock without any change in the par value per share.No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would otherwise be entitled to a fraction ofone share of New Common Stock as a result of the Reverse Stock Split instead received cash equal to such fraction multiplied by the closing sale price of Common Stock on The Nasdaq Capital Market on* September 22, 2022,*as adjusted for the Reverse Stock Split.

On* February 2, 2023,following the approval of Avenue's Board of Directors and Avenue's stockholders at the Company’s2022* annual meeting of stockholders, the Company filed an amendment to Avenue's Third Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 20,000,000 to 75,000,000 shares.

All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.

F-8

Stock Purchase and Merger Agreement

In* July 2022the Company entered into a share repurchase agreement with InvaGen Pharmaceuticals Inc. ("InvaGen"). Upon the closing of a public offering in October 2022,InvaGen gave up all rights set forth in the stockholders agreement to which it was previously party and the Company repurchased the 388,888 common shares of the Company held by InvaGen. The excess of the consideration paid to InvaGen over the fair market value on the date of repurchase of $1.9 million was recognized in general and administrative expense for the year ended December 31, 2022in the Consolidated Statement of Operations. Under the share repurchase agreement with InvaGen, the Company agreed to pay InvaGenseven* and a half percent (7.5%) of the proceeds from future financings, up to $4 million. In connection with the closing of financings that occurred in2023 and2022, Avenue made payments totaling $0.5 million to InvaGen.

Liquidity and Capital Resources

• October 2022*Public Offering

In* October 2022,the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with Aegis Capital Corp., as underwriter (the “Underwriter”), related to the Company's underwritten public offering (the “October 2022Offering”) of 2,652,065 units ( “October 2022Units”) and 984,300 pre-funded units ( “October 2022Pre-funded Units”). Each October 2022Unit consisted ofone share (a “October 2022Share”) of Avenue's common stock, andone warrant to purchaseone share of Avenue's common stock (each, a “October 2022Warrant” and, collectively, the “October 2022Warrants”), and each October 2022Pre-funded Unit consisted ofone pre-funded warrant to purchaseone share of common stock (each, a “October 2022Pre-funded Warrant” and collectively, the “October 2022Pre-funded Warrants”) andone October 2022Warrant. The October 2022Units were sold at a price of $3.30 per unit, and the October 2022Pre-Funded Units were sold at a price of $3.2999 ($3.30 less $0.0001, the exercise price of the October 2022*Pre-funded Warrants).

The* October 2022Warrants became immediately exercisable upon issuance and are exercisable for a period offive years after the issuance date. The October 2022Shares, the October 2022Pre-funded Warrants and the October 2022Warrants were immediately separable upon issuance and were issued separately. The Underwriter was granted a45*-day option to purchase up to an aggregate of (i)545,454 additional* October 2022Shares and/or October 2022Pre-funded Units, representing 15% of the October 2022Shares and October 2022Pre-funded Warrants sold in the October 2022Offering, and/or (ii) October 2022Warrants to purchase 545,454 additional October 2022Shares, representing 15% of the October 2022Warrants sold in the October 2022Offering, which it initially exercised, in part, electing to purchase 545,454 * October 2022Warrants at a purchase price of $0.01 per* October 2022Warrant. The Company consummated the transactions contemplated by the Offering and the Underwriting Agreement on October 11, 2022.Prior to the closing date of the Offering, investors in certain of the October 2022Pre-funded Warrants, pursuant to the terms thereof, elected to exercise 949,900 * October 2022Pre-funded Warrants. Accordingly, at the closing, the Company issued 949,900 fewer* October 2022*Pre-funded Warrants and, in lieu thereof, the corresponding 949,900 shares of common stock.

The Company received net proceeds from the* October 2022*Offering of $10.3 million, after deducting underwriting discounts, commissions and offering expenses before giving effect to any warrant exercises.

• January 2023*Registered Direct Offering and Private Placement

On* January 27, 2023,the Company entered into a Securities Purchase Agreement (the “Registered Purchase Agreement”) with a single institutional accredited investor, pursuant to which the Company agreed to issue and sell (i)448,000 shares (the “January 2023Shares”) of Avenue's common stock at a price per January 2023Share of $1.55, and (ii) pre-funded warrants (the “January 2023Pre-funded Warrants”) to purchase 1,492,299 shares of common stock, at a price per January**2023* Pre-funded Warrant equal to the price per* January 2023Share, less $0.001 (the “January 2023Registered Direct Offering”). The January 2023Pre-funded Warrants had an exercise price of $0.001 per share, became exercisable upon issuance and have been fully exercised. As of December 31, 2023,the January 2023Pre-Funded Warrants issued in the January 2023*Registered Direct Offering have been exercised.

On* January 27, 2023,the Company also entered into a Securities Purchase Agreement (the “January 2023PIPE Purchase Agreement”) with the same institutional accredited investor for a private placement offering ( “January 2023Private Placement”) of warrants (the “January 2023Warrants”) to purchase 1,940,299 shares of common stock. Pursuant to the January 2023PIPE Purchase Agreement, the Company agreed to issue and sell the January 2023Warrants at an offering price of $0.125 per January 2023Warrant to purchaseone* share of common stock. The* January 2023Warrants have an exercise price of $1.55 per share (subject to adjustment as set forth in the January 2023Warrants), became exercisable immediately after issuance and will expire three years from the date on which the January 2023Warrants become exercisable. The January 2023Private Placement closed on January 31, 2023,concurrently with the January 2023*Registered Direct Offering.

The Company received net proceeds from the* January 2023*Registered Direct Offering and Private Placement of $2.8 million, after deducting underwriting discounts, commissions and offering expenses before giving effect to any warrant exercises.

In connection with the* January 2023PIPE Purchase Agreement, the Company entered into a registration rights agreement (the “January 2023Registration Rights Agreement”) with the investor. The Company filed such registration statement on Form S-1 in April 2023,and the registration statement was subsequently declared effective by the SEC in May 2023.As described in more detail in Note10* to these audited consolidated financial statements, the Company entered into an inducement offer letter agreement with the same institutional accredited investor who agreed to exercise the* January 2023Warrants issued in the January 2023Private Placement at a reduced exercise price of $0.3006 per share in January 2024.*

• September 2023*Private Placement

On* September 8, 2023,the Company entered into an unwritten agreement with Fortress and Dr. Lindsay A. Rosenwald, a director on the board of directors of the Company (Dr. Rosenwald and Fortress, together, the “September 2023Investors”), pursuant to which the Company agreed to issue and sell 767,085 shares (the “September 2023Shares”) of Avenue's common stock, par value $0.0001 per share, for an aggregate purchase price of approximately $0.6 million in a private placement transaction (the “September 2023Private Placement”) exempt from the registration requirements of the Securities Act of1933,* as amended (the “Securities Act”), and the rules and regulations of the SEC thereunder. The shares were purchased by the Private Placement Investors at a price of $0.717 per share, which was the “consolidated closing bid price” of the common stock on The Nasdaq Capital Market as of* September 7, 2023,in compliance with Nasdaq Listing Rule5365*(c). The net proceeds to the Company from the* September 2023Private Placement, after deducting offering expenses, were approximately $0.6 million. The Company didnot* incur any underwriting or placement agent fees associated with the* September 2023*Private Placement.

In connection with the* September 2023Private Placement, the Company entered into a registration rights letter agreement (the “Registration Rights Letter Agreement”) with the Private Placement Investors. Pursuant to the Registration Rights Letter Agreement, the Company will be required to file, on or prior to September 8, 2024 (the “September 2023Private Placement Filing Date”), a resale registration statement (the “September 2023Private Placement Resale Registration Statement”) with the SEC to register the resale of the September 2023*Shares.

• November 2023*Public Offering

On* October 31, 2023,the Company entered into a Placement Agency Agreement (the “November 2023Placement Agency Agreement”) with Maxim Group LLC and Lake Street Capital, LLC as placement agents (together, the “November 2023Placement Agents”) related to the Company’s public offering (the “November 2023Offering”) of 16,633,400 units (each consisting of either (A)one share of the Company’s common stock, par value $0.0001 per share ( “November 2023Share”), a Series A warrant ( “November 2023Series A Warrant”) to purchaseone November 2023Share and a Series B warrant ( “November 2023Series B Warrant” and, collectively with the Series A Warrants, “November 2023Warrants”) to purchaseone November 2023Share (such units, the “November 2023Common Units”) or (B)one pre-funded warrant to purchaseone November 2023Share (the “November 2023Pre-funded Warrants”), a November 2023Series A Warrant and a November 2023Series B Warrant (such units, the “November 2023Pre-funded Units” and together with the November 2023Shares, the November 2023Warrants, the November 2023Common Units and the November 2023Pre-funded Warrants, the “November 2023Securities”)). Under the terms of the November 2023Placement Agency Agreement, the November 2023Placement Agents acted as the Company’s exclusive placement agents to solicit offers to purchase the November 2023Securities on a “best efforts” basis. The Company also entered into a securities purchase agreement, dated as of October 31, 2023 (the “November 2023Securities Purchase Agreement”), with certain institutional investors buying November 2023Securities in the November 2023Offering. Pursuant to the November 2023Offering,3,853,400 * November 2023Common Units were sold at a price of $0.3006 per* November 2023Unit and the 12,780,000 * November 2023Pre-Funded Units were sold at a price of $0.3005. As of* December 31, 2023,all of the November 2023Pre-Funded Warrants issued in the November 2023*Offering have been exercised.

The* November 2023Series A Warrants became immediately exercisable upon issuance and are exercisable at a price of $0.3006 per share for a period offive years after the issuance date. The November 2023Series B Warrants became immediately exercisable upon issuance and exercisable at a price of $0.3006 per share for a period of 18 months after the issuance date. The November 2023Pre-funded Warrants became immediately exercisable upon issuance and are exercisable at a price of $0.0001 per share until exercised in full. The November 2023Shares, the November 2023Pre-funded Warrants and the November 2023Warrants were immediately separable upon issuance and were issued separately. The Company consummated the transactions contemplated by the November 2023Offering and the November 2023Placement Agency Agreement on November 2, 2023.Upon the closing of the November 2023Offering, the Company paid the November 2023Placement Agents a cash transaction fee equal to 8% of the aggregate gross cash proceeds and reimbursed the November 2023Placement Agents for certain out-of-pocket expenses incurred in connection with this November 2023*Offering.

The Company received net proceeds from the* November 2023Offering of approximately $3.8 million, after deducting the placement agent fees and offering expenses, and before giving effect to any exercises of the November 2023Warrants. As described in more detail in Note10,* the Company entered into an inducement offer letter agreement with certain investors in the* November 2023Offering who agreed exercise certain outstanding November 2023Warrants to purchase up to an aggregate of 14,600,000 shares of common stock at their exercise price of $0.3006 per share in January 2024.*

Going Concern

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. However, as described below, substantial doubt about the Company’s ability to continue as a going concern exists.

F-9

The Company isnot yet generating revenue, has incurred substantial operating losses since its inception and expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and* maynever become profitable. As of December 31, 2023*, the Company had an accumulated deficit of $90.9 million. Due to uncertainties regarding future operations of the Company for an ongoing Phase1b/2a trial ofAJ201, a potential Phase3 safety study for IV tramadol, and the expansion of the Company’s development portfolio within neuroscience with the consummation of the transaction with Baergic, the Company will need to secure additional funds through equity or debt offerings, or other potential sources, the timing of which is unknown at this time. The Company will require additional funds to cover operational expenses over the next12 months. The Company cannot be certain that additional funding will be available to it on acceptable terms, or at all. These factors individually and collectively causes substantial doubt about the Company’s ability to continue as a going concern to exist withinone year from the date of this report. The consolidated financial statements donot include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that* may*be necessary if the Company were unable to continue as a going concern.

Note 2 —Significant Accounting Policies

Basis of Presentation & Principles of Consolidation

The Company’s consolidated financial statements have been prepared in conformity with U.S. GAAP, include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented and are stated in U.S. dollars. The Company’s consolidated financial statements include the accounts of the Company and the accounts of the Company’s subsidiary. All intercompany balances and transactions have been eliminated.

The accompanying consolidated financial statements include the accounts of the Company’s subsidiary, Baergic. Because the Company owns less than100% of Baergic, the Company records net loss attributable to non-controlling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in Baergic by the respective non-controlling parties. The Company continually assesses whether changes to existing relationships or future transactions* may*result in the consolidation or deconsolidation of its' subsidiary.

Segments

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company views its operations and manages its business inone operating and reporting segment.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity ofthree months or less when purchased to be cash equivalents. Cash and cash equivalents at* December 31, 2023* and2022 consisted of cash in institutions in the United States. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are currently adequately protected against credit risk. At times, portions of the Company’s cash and cash equivalents* maybe uninsured or in deposit accounts that exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. As of December 31, 2023*, the Company hadnot experienced losses on these accounts, and management believes the Company isnot exposed to significant risk on such accounts. The Company’s cash equivalents and investments* maycomprise money market funds that are invested in U.S. Treasury obligations, corporate debt securities, U.S. Treasury obligations and government agency securities. Credit risk in these securities is reduced as a result of the Company’s investment policy to limit the amount invested in any single issuer and to only invest in securities of a high credit quality. The Company hasno* significant off-balance sheet risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

F-10

Accounts Payable and Accrued Expenses–*** Related Party***

In the normal course of business, Fortress pays for certain expenses on behalf of the Company. Such expenses are recorded as accounts payable and accrued expenses – related party and are recorded at the invoiced amount and reimbursed to Fortress in the normal course of business.

Research and Development

Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront and milestone payments due tothird parties that perform research and development services on the Company’s behalf will be expensed as services are rendered or when the milestone is achieved.

Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made tothird parties for license and milestone costs related to in-licensed products and technology, payments made tothird party contract research organizations for preclinical and clinical studies, investigative sites for clinical trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings and patents, laboratory costs and other supplies.

Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed hasnot reached commercial feasibility and haveno alternative future use. The licenses purchased by the Company require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and hasno alternative future use. Accordingly, the total purchase price including any development milestone payments for the licenses acquired are reflected as research and development on the Company's consolidated statements of operations.

Contingencies

The Company records accruals for contingencies and legal proceedings expected to be incurred in connection with a loss contingency when it is probable that a liability has been incurred and the amount can be reasonably estimated. If a loss contingency isnot probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Warrant Liability

The Company has issued freestanding warrants to purchase shares of its common stock in connection with financing activities (Warrants as described in Note8) and accounts for them in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreements. Warrants classified as liabilities are remeasured each period they are outstanding. Any resulting gain or loss related to the change in the fair value of the warrant liability is recognized in change in fair value of warrant liabilities, a component of other income (loss), in the consolidated statements of operations.

Fair Value Measurements

The Company follows accounting guidance on fair value measurements for financial assets and liabilities measured at fair value on a recurring basis. Under the accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

F-11

The accounting guidance requires fair value measurements be classified and disclosed inone of the followingthree categories:

Level1: Quoted prices in active markets for identical assets or liabilities.

Level2: Observable inputs other than Level1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level3: Unobservable inputs which are supported by little orno market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

Certain of the Company’s financial instruments arenot measured at fair value on a recurring basis but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as accounts payable, accrued expenses and other current liabilities.

Annual Stock Dividend

In* September2016,* in connection with the adoption of the Amended and Restated Articles of Incorporation, the Company issued 250,000 Class A Preferred stock to Fortress. The Class A Preferred stock entitled the holder to a stock dividend equal to 2.5% of the fully-diluted outstanding equity of the Company on* February 16 (the "Annual Stock Dividend”) to be paid on February17* of each year. On* June13,* 2018, the Company’s Stockholders adopted an amendment to the Company’s Third Amended and Restated Certificate of Incorporation amending the record date to* December 31and the payment date going forward to January1* of each year. Concurrently with the execution and delivery of the SPMA, the Company, InvaGen and Fortress entered into a waiver agreement (“the Waiver Agreement”), pursuant to which, among other things, Fortress irrevocably waived its right to receive dividends of the Company’s common shares under the terms of the Class A Preferred Stock and any fees, payments, reimbursements or other distributions under a certain management services agreement between the Company and Fortress and the Founders Agreement (as defined in the SPMA), for the period* November**12,* 2018 to the termination of InvaGen’s rights under Section4 of the Stockholders Agreement that was signed between the Company, certain stockholders of the Company, and InvaGen. As a result of the consummation of the Share Repurchase Agreement on* October 31, 2022,*the Waiver Agreement was terminated and the right to dividends of the Company’s Common Stock was restored. The Annual Stock Dividend terminates upon conversion of the Class A Preferred stock or a Change of Control as defined in the Third Amended and Restated Certificate of Incorporation.

Pursuant to the Third Amended and Restated Certificate of Incorporation, the Company issued 1,685,767 shares of common stock to Fortress for the Annual Stock Dividend, representing 2.5% of the fully-diluted outstanding equity of the Company, on* January 2, 2024.This was shown in the consolidated statements of stockholders’ equity at December 31, 2023*, as part of additional paid-in capital. The Company recorded an expense of approximately $0.3 million in research and development related to these issuable shares during the year ended* December 31, 2023*. The Company issued 231,316 shares of common stock to Fortress for the Annual Stock Dividend on* January 1, 2023.This was shown in the consolidated statements of stockholders' equity at December 31, 2022,as part of additional paid-in capital. The Company recorded an expense of approximately $0.3 million in research and development related to these issuable shares during the year ended December 31, 2022.*

The Company expenses stock-based compensation to its employees, consultants and board members over the requisite service period based on the estimated grant-date fair value of the awards. The Company estimates the fair value of option grants using the Black-Scholes option pricing model, which includes assumptions for expected volatility, risk-free interest rate, dividend yield, and estimated expected term. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting tranche of the award. The Company accounts for forfeitures as they occur by reversing any expense recognized for unvested awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Stock options granted to employees generally fully vest over four years and have a term often years.

F-12

Income Taxes

The Company accounts for income taxes under ASC740, Income Taxes (“ASC740”). ASC740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC740 additionally requires a valuation allowance to be established when it is more likely thannot that all or a portion of deferred tax assets willnot be realized.

ASC740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there areno significant uncertain tax positions requiring recognition in the Company’s financial statements. The2019 through2021 tax years are the only periods subject to examination upon filing of appropriate tax returns. The Company believes that its income tax positions and deductions would be sustained on audit and doesnot anticipate any adjustments that would result in a material change to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There wereno amounts accrued for penalties or interest as of or during the years ended* December 31, 2023* and2022. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Non-Controlling Interests

Non-controlling interests in consolidated entities represent the component of equity in consolidated entities held bythird parties. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. Intercompany activity is eliminated entirely in consolidation prior to the allocation of net gain/loss attributable to non-controlling interest, which is based on ownership interests.

Comprehensive Loss

The Company’s comprehensive loss is equal to its net loss for all periods presented.

Net Loss Per Share

Loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding, excluding unvested restricted stock and stock options and preferred shares, during the period. Dividends declared are paid and set aside among the holders of shares of common stock and Class A Preferred stock pro-rata on an as-if-converted basis.

The following table sets forth the potential common shares that could potentially dilute basic income per share in the future that werenot included in the computation of diluted net loss per share because to do so would have been anti-dilutive for the periods presented:

F-13

Recent Accounting Pronouncement to be Adopted

In* October 2023,the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Updated and Simplification Initiative", which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification. ASU2023*-06 was issued in response to the U.S. Securities and Exchange Commission’s (the “SEC”)* August 2018final rule that updated and simplified disclosure requirements and is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that arenot* subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. However, if by* June 30, 2027,the SEC hasnot* removed the related disclosure from its regulations, the amendments will be removed from the Codification andnot become effective for any entity. The Company is currently evaluating the impact of this guidance, the adoption of this guidance isnot expected to have a material impact on its consolidated financial statements and disclosures.

In* November 2023,FASB issued ASUNo.* 2023-07, “Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*.” The amendments in ASU2023-07 improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The amendments introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), extend certain annual disclosures to interim periods, clarify single reportable segment entities must apply ASC280 in its entirety, permit more thanone measure of segment profit or loss to be reported under certain conditions, and require disclosure of the title and position of the CODM. This guidance is effective for fiscal years, beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

In* December 2023,the FASB issued ASU2023*-09, "Income Taxes (Topic740*): Improvements to Income Tax Disclosures",* which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after* December 15, 2024.*The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

Note 3 —License/Supplier Agreements

IV Tramadol License

Effective as of* February17,* 2015, Fortress transferred the Revogenex license and all other rights and obligations under the License Agreement to the Company, pursuant to the terms of the Founders Agreement. In connection with the terms of the License Agreement, Fortress purchased an exclusive license to IV tramadol for the U.S. market from Revogenex, a privately held company in Dublin, Ireland. Fortress made an upfront payment of $2.0 million to Revogenex upon execution of the exclusive license, and on* June17,* 2015, Fortress paid an additional $1.0 million to Revogenex after receiving all the assets specified in the agreement. In* December 2019,*$1.0 million became due to Revogenex in accordance with the Company’s submission of its NDA. In addition, under the terms of the agreement, Revogenex is eligible to receive an additional milestone payment totaling $3.0 million upon the approval of IV tramadol from the FDA as well as royalty payments on net sales of the product ranging in the high single digits to low double digits.

On* October**29,* 2018, the Company and Zaklady Farmaceutyczne Polpharma (“Polpharma”) extended the term of their exclusive supply agreement for drug product of IV tramadol toeight years from the date of the launch of the product. In addition, under the terms of the amended agreement, Polpharma is eligible to receive a milestone payment totaling $2.0 million upon the approval of IV tramadol from the FDA, as well as a low single digit royalty on net sales of the product forfive years after launch.

Baergic Licenses

In* December 2019,Baergic entered intotwo* license agreements: (i) a license agreement (the “AZ License”) with AstraZeneca AB (“AZ”) to acquire an exclusive license to patent and related intellectual property rights pertaining to their proprietary compound Gamma-aminobutyric acid receptor A alpha2 &3 (GABAAα2,3) positive allosteric modulators; and (ii) a license agreement (the “CCHMC License”) with Cincinnati Children’s Hospital Medical Center (“CCHMC”) to acquire patent and related intellectual property rights pertaining to a GABA inhibitor program for neurological disorders. Baergic paid an upfront fee of $3.0 million to AZ and $0.2 million to CCHMC and issued shares of its common stock comprising of approximately 20% and 5% of Baergic’s outstanding capital stock to each at the time of the license agreement, respectively.

Development milestones totaling approximately $81.5 million in the aggregate are due upon achievement of such milestones. Commercial and sales-based milestone payments totaling approximately $151 million are due upon achievement of such milestones, as well as royalty payments in the low to high single digits on any future aggregate, annual, worldwide net sales.

AnnJi License

On* February 28, 2023,the Company entered into a license agreement with AnnJi. Under the AnnJi License Agreement, in exchange for exclusive rights to the intellectual property underlying theAJ201* product candidates, the Company agreed to pay $3.0 million, of which $2.0 million was paid on* April 27, 2023and $1.0 million was paid on September 8, 2023.The Company is also obligated to make additional payments over the course of the AnnJi License Agreement including: reimbursement payments of up to $10.8 million in connection with the product’s Phase1b/2a* clinical trial (which AnnJi is administering with Joint Steering Committee Oversight before assigning the Investigational New Drug Application ("IND") to the Company upon such trial’s conclusion, and which is reflective of market pricing for the services to be received), up to $14.5 million in connection with certain development milestones pertaining to thefirst indication in the U.S., up to $27.5 million in connection with certain drug development milestones pertaining to additional indications and development outside the U.S., up to $165 million upon the achievement of certain net sales milestones ranging from $75 million to $750 million in annual net sales, and royalty payments based on a percentage of net sales ranging from mid-single digits (on annual net sales at or below $50 million) to the low double digits (on annual net sales equal to or greater than $300 million), which are subject to potential diminution in certain circumstances.

The license provided under the AnnJi License Agreement is exclusive as to all oral forms ofAJ201 for use in all indications (other than androgenetic alopecia and Alzheimer’s disease) in the United States, Canada, the European Union, the United Kingdom and Israel. The AnnJi License Agreement also contains customary representations and warranties and provisions related to confidentiality, diligence, indemnification and intellectual property protection. The Company will initially be obligated to obtain both clinical and commercial supply ofAJ201 exclusively through AnnJi. AnnJi retains the manufacturing rights forAJ201 and the Company has the option to acquire those rights from AnnJi as described in the AnnJi License Agreement.

In connection with the signing of the AnnJi License Agreement, the Company issued 831,618 shares of its common stock to AnnJi (“First Tranche Shares”) at a fair value of $0.9 million on* March 30, 2023.The Company issued 276,652 shares of common stock ("Second Tranche Shares"), recorded at a fair value of $0.3 million, on September 26, 2023upon enrollment of theeighth* patient in the ongoing Phase1b/2a SBMA clinical trial. The fair value was calculated based on the closing price of the Company's stock as of* February 28, 2023,*the date the Company entered into the AnnJi License Agreement. In the event that the common stock of the Company ceases to be traded on a national securities exchange, AnnJi has the right to sell common stock of the Company back to the Company at a price of $2.10 per share subject to the terms in the AnnJi License Agreement.

In connection with execution of the AnnJi License Agreement, Avenue entered into a registration rights agreement with AnnJi, pursuant to which Avenue filed a registration statement to register the resale of the First Tranche Shares and Second Tranche Shares issued to AnnJi. The Company filed such registration statement on Form S-3 with the SEC on* June 16, 2023,which was declared effective on June 27, 2023.*

F-14

Note 4 —Related Party Agreements

Founders Agreement and Management Services Agreement with Fortress

Fortress entered into a Founders Agreement with Avenue in* February**2015* (as amended, the “Fortress-Avenue Founders Agreement”), pursuant to which Fortress assigned to Avenue all of its rights and interest under Fortress’s license agreement with Revogenex for IV tramadol (the “License Agreement”). As partial consideration for the Fortress-Avenue Founders Agreement, Avenue assumed $3.0 million in debt that Fortress had accumulated for expenses and costs of forming Avenue and obtaining the IV tramadol license. This debt was repaid to Fortress in2017. As additional consideration for the transfer of rights under the original Fortress-Avenue Founders Agreement, Avenue also agreed to: (i) issue annually to Fortress, on the anniversary date of the Fortress-Avenue Founders Agreement, shares of common stock equal totwo andone half percent (2.5%) of the fully-diluted outstanding equity of Avenue; (ii) pay an equity fee in shares of Avenue common stock, payable withinfive (5) business days of the closing of any equity or debt financing for Avenue or any of its respective subsidiaries that occurs after the effective date of the Founders Agreement and ending on the date when Fortressno longer has majority voting control in Avenue’s voting equity, equal totwo andone half percent (2.5%) of the gross amount of any such equity or debt financing; and (iii) pay a cash fee equal tofour andone half percent (4.5%) of Avenue’s annual net sales, payable on an annual basis, withinninety (90) days of the end of each calendar year. In the event of a change in control (as it is defined in the Founders Agreement), Fortress will be paid aone-time change in control fee equal tofive (5x) times the product of (i) net sales for thetwelve (12) months immediately preceding the change in control and (ii)four andone-half percent (4.5%).

On* September 13, 2016,the Company amended the Fortress-Avenue Founders Agreement to remove the Annual Equity Fee (that feature remained in substance and became issuable to the holders of Avenue’s Class A Preferred stock, all of which is currently held by Fortress) and to add a term of 15 years, which upon expiration automatically renews for successiveone*-year periods unless terminated by Fortress or a Change in Control occurs. Concurrently with effecting such amendment of the Fortress-Avenue Founders Agreement, the Company entered into an Exchange Agreement whereby the Company exchanged Fortress’155,555 Class A common shares for approximately 166,027 common shares and 250,000 Class A Preferred stock(see Note7).

Effective as of* February 17, 2015,Fortress entered into a Management Services Agreement (the “Fortress-Avenue MSA”) with Avenue pursuant to which Fortress provides advisory and consulting services to Avenue pursuant to the terms thereof. The Fortress-Avenue MSA contained an initial five-year term and shall be automatically extended for additional five-year periods unless Fortress or the Company provides written notice of its desirenot* to automatically extend the term of the MSA at least90 days prior to the applicable expiration date. Services provided under the Fortress-Avenue MSA* mayinclude, without limitation, (i) advice and assistance concerning any and all aspects of Avenue’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of Avenue with accountants, attorneys, financial advisors and other professionals (collectively, the “Services”). Avenue is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Fortress, provided those services are offered at market prices. However, Avenue isnot* obligated to take or act upon any advice rendered from Fortress, and Fortress shallnot be liable for any of Avenue’s actions or inactions based upon their advice. Fortress and its affiliates, including all members of Avenue’s Board of Directors, have been contractually exempt from fiduciary duties to Avenue relating to corporate opportunities. In consideration for the Services, Avenue will pay Fortress an annual consulting fee of $0.5 million (the “Annual Consulting Fee”), payable in advance in equal quarterly installments on thefirst business day of each calendar quarter in each year, provided, however, that such Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which Avenue has net assets in excess of $100.0 million at the beginning of the calendar year. Effective beginning on* November**12,* 2018, eligibility to receive such fees was waived pursuant to a Waiver Agreement signed between Avenue, Fortress and InvaGen. The Fortress-Avenue MSA fee was reinstated upon the closing of the* October 2022*public offering.

Founders Agreement and Management Services Agreement with Baergic

Pursuant to the Share Contribution Agreement between Avenue and Fortress, the Founders Agreement and Management Services Agreement that had previously been existing between Fortress and Baergic were assigned to Avenue, such that they now exist between Avenue and Baergic; those agreements are referred to herein as the Avenue-Baergic Founders Agreement and the Avenue-Baergic MSA, as applicable. The Annual Stock Dividend payable to the Company is 2.5% of common stock calculated as a percentage of fully diluted outstanding capital and became effective as of* November 8, 2022.For the years ended December 31, 2023and December 31, 2022,Baergic recorded an Annual Stock Dividend of $23 thousand and $10 thousand to Avenue on December 31, 2023and2022,* respectively. The Annual Stock Dividends for the years ending* December 31, 2023and2022* were paid in shares on* January 1, 2024and2023,* respectively.

F-15

The Avenue-Baergic Founders Agreement has an effective date of* March 9, 2017,and a term of15* years, which upon expiration automatically renews for successiveone-year periods unless terminated by Avenue and Baergic or a Change in Control (as defined in the Avenue-Baergic Founders Agreement) occurs.

As additional consideration under the Avenue-Baergic Founders Agreement, Baergic will also: (i) pay an equity fee in shares of common stock, payable withinfive (5) business days of the closing of any equity or debt financing for Baergic that occurs after the effective date of the Avenue-Baergic Founders Agreement and ending on the date when Avenueno longer has majority voting control in the Baergic’s voting equity, equal totwo andone-half (2.5%) of the gross amount of any such equity or debt financing; and (ii) pay a cash fee equal tofour andone-half percent (4.5%) of the Baergic’s annual net sales, payable on an annual basis, withinninety (90) days of the end of each calendar year. In the event of a Change in Control, Baergic will pay aone-time change in control fee equal tofive (5x) times the product of (A) net sales for thetwelve (12) months immediately preceding the change in control and (B)four andone-half percent (4.5%).

The Avenue-Baergic MSA has an effective date of* March 9, 2017,pursuant to which Avenue renders management, advisory and consulting services to the Company. The MSA has an initial term offive years and is automatically renewed for successive five-year terms unless terminated in accordance with its provisions. Services provided under the MSA mayinclude, without limitation, (i) advice and assistance concerning any and all aspects of the Baergic’s operations, clinical trials, financial planning and strategic transactions and financings and (ii) conducting relations on behalf of the Baergic with accountants, attorneys, financial advisors and other professionals (collectively, the “Avenue Services”). Baergic is obligated to utilize clinical research services, medical education, communication and marketing services and investor relations/public relation services of companies or individuals designated by Avenue, provided those services are offered at market prices. However, Baergic isnot* obligated to take or act upon any advice rendered from Avenue and Avenue shallnot be liable for any of its actions or inactions based upon their advice. Pursuant to the Avenue-Baergic MSA and Baergic’s Certificate of Incorporation, Avenue and its affiliates, including all members of Baergic’s Board of Directors, will haveno fiduciary or other duty to communicate or present any corporate opportunities to Baergic or to refrain from engaging in business that is similar to that of Baergic. In consideration for the Avenue Services, Baergic will pay Avenue an annual consulting fee of $0.5 million (the “Avenue-Baergic Annual Consulting Fee”), payable in advance in equal quarterly installments on thefirst business day of each calendar quarter in each year, provided, however, that such Avenue-Baergic Annual Consulting Fee shall be increased to $1.0 million for each calendar year in which Baergic has net assets in excess of $100 million at the beginning of the calendar year.

Acquisition of Baergic

On* May 11, 2022,the Company entered into the Contribution Agreement with Fortress related to the Company’s acquisition of Baergic, on the terms and subject to the satisfaction of conditions described above in Note1* – Organization, Plan of Business Operations. Evaluation and negotiation of the Contribution Agreement was overseen, and execution of the Contribution Agreement was approved, by special committees at the Avenue and Fortress levels, both of which exclusively comprised independent and disinterested directors of the respective companies’ boards. The Company believes that the terms of the Contribution Agreement is at least as favorable as the terms that the Company would have been able to obtain with a disinterested party.

The transaction was accounted for as an asset acquisition between entities under common control. As such, the transaction was recorded at carryover basis, with all assets, liabilities and non-controlling interests measured at their historical carrying values. The consolidated financial statements of the Company include the consolidated results of operations for Avenue and Baergic since the acquisition date on* November 8, 2022.*

F-16

Note5 —Accounts Payable and Accrued Expenses

Accounts payable, accrued expenses and other liabilities consisted of the following (in thousands):

Note 6 —Commitments and Contingencies

Leases

The Company isnot a party to any leases for office space or equipment.

Litigation

The Company recognizes a liability for a contingency when it is probable that liability has been incurred and when the amount of loss can be reasonably estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount of such loss, and if such amount isnot determinable, then the Company accrues the minimum of the range of probable loss. As of* December 31, 2023* and2022, there wasno litigation against the Company.

Note 7 —Stockholders’** Equity**

Class A Preferred Stock

On* September**13,* 2016, 2,000,000 shares of Preferred Stock were authorized, of which 250,000 have been designated as Class A Preferred Stock and the remainder are undesignated preferred stock. The Class A Preferred Stock, with a par value of $0.0001 per share, is identical to undesignated Common Stock other than as to voting rights, conversion rights, and the Annual Stock Dividend right (as described below). The undesignated Preferred Stock* maybe issued from time to time inone* or more series. The Company’s Board of Directors is authorized to determine or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions, if any), the redemption price or prices, the liquidation preferences and other designations, powers, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock (butnot below the number of shares of any such series then outstanding).

On any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Class A Preferred Stock shall be entitled to cast for each share of Class A Preferred Stock held by such holder as of the record date for determining stockholders entitled to vote on such matter, the number of votes that is equal toone andone-tenth (1.1) times a fraction, the numerator of which is the sum of (A) the number of shares of outstanding Common Stock and (B) the whole shares of Common Stock in to which the shares of outstanding Class A Preferred Stock are convertible, and the denominator of which is number of shares of outstanding Class A Preferred Stock (the “Class A Preferred Stock Ratio”). Thus, the Class A Preferred Stock will at all times constitute a voting majority.

F-17

Each share of Class A Preferred Stock is convertible, at the option of the holder, intoone fully paid and nonassessable share of Common Stock (the “Conversion Ratio”), subject to certain adjustments. If the Company, at any time effects a subdivision or combination of the outstanding Common Stock (by any stock split, stock dividend, recapitalization, reverse stock split or otherwise), the applicable Conversion Ratio in effect immediately before that subdivision is proportionately decreased or increased, as applicable, so that the number of shares of Common Stock issuable on conversion of each share of Class A Preferred Stock shall be increased or decreased, a applicable, in proportion to such increase or decrease in the aggregate number of shares of Common Stock outstanding. Additionally, if any reorganization, recapitalization, reclassification, consolidation or merger involving the Company occurs in which the Common Stock (butnot the Class A Preferred Stock) is converted into or exchanged for securities, cash or other property, then each share of Class A Preferred Stock becomes convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Company issuable upon conversion ofone share of the Class A Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction. Pursuant to the reverse stock split by the Company in* September 2022,the Class A Preferred Stock has a Conversion Ratio of 15 Class A Preferred toone* share of Common Stock.

Common Stock

On* January 30, 2023,the stockholders of the Company voted at the Company's2022* annual meeting of stockholders to approve an amendment to the Company's Third Amended and Restated Certificate of Incorporation, to increase the number of authorized shares of common stock by 55,000,000 shares of common stock, bringing the total number of authorized shares of common stock to 75,000,000 shares with a par value of $0.0001, of which 25,597,622 shares of common stock are outstanding as of* December 31, 2023.As of December 31, 2022,*20,000,000 shares were authorized and 4,773,841 shares of common stock were outstanding.

Holders of the Company's common stock are entitled toone vote for each share held on all matters submitted to a vote of stockholders and donot have cumulative voting rights. An election of directors by Avenue stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as* may*be declared by the Company's Board of Directors, subject to any preferential dividend rights of outstanding preferred stock.

In the event of the Company's liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock haveno preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and* maybe adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may*designate and issue in the future.

F-18

Equity Incentive Plan

The Company has in effect the Avenue Therapeutics, Inc.2015 Incentive Plan (as amended, the*“2015* Incentive Plan’). The2015 Incentive Plan was adopted in* January**2015* by Avenue's stockholders and an amendment to the plan to increase the number of authorized shares issuable to 266,666 shares was approved by Avenue stockholders in* December 2021.The2015* Incentive Plan was amended again to increase the number of authorized shares issuable to 5,266,666 shares and approved by the Company's stockholders on* January 30, 2023.Under the2015* Incentive Plan, the compensation committee of the Company’s board of directors is authorized to grant stock-based awards to directors, officers, employees and consultants. The plan authorizes grants to issue up to 5,266,666 shares of authorized but unissued common stock and expires 10 years from adoption and limits the term of each option tono more than 10 years from the date of grant.

Total shares available for the issuance of stock-based awards under the Company’s2015 Incentive Plan was 3,352,489 shares at* December 31, 2023*.

Restricted Stock Units and Restricted Stock Awards

The following table summarizes restricted stock unit and award activity for the year ended* December 31, 2023*:

For the years ended* December 31, 2023* and2022, stock-based compensation expenses associated with the amortization of restricted stock units and restricted stock awards for employees and non-employees were approximately $0.1 million and $0.6 million, respectively.

F-19

At* December 31, 2023*, the Company had unrecognized stock-based compensation expense related to restricted stock units and restricted stock awards of $0.1 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.59 years. This amount doesnot include, as of* December 31, 2023*,3,333 shares of restricted stock outstanding which are performance-based and vest upon achievement of certain corporate milestones. The expense is recognized over the vesting period of the award. Stock-based compensation for awards containing performance conditions will be measured as of the grant date and recorded if and when it is probable that the performance condition will be achieved.

The following table summarizes stock-based compensation expense for the years ended* December 31, 2023and2022* (in thousands):

Stock Options

The following table summarizes the stock option activity for the years ended* December 31, 2023and2022*:

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of common stock for those options that had exercise prices lower than the fair value of common stock.

Upon the exercise of stock options, the Company will issue new shares of its common stock.

For the years ended* December 31, 2023* and2022, stock-based compensation expenses associated with the amortization of options awards for employees and non-employees were approximately $0.8 million and $0, respectively. As of* December 31, 2023,*unrecognized compensation cost for options issued was $0.9 million and will be recognized over an estimated weighted average amortization period of 1.7 years.

The Company used the Black-Scholes Model for determining the estimated fair value of stock-based compensation related to stock options. The table below summarized the assumptions used:

Stock Warrants

The following table summarizes the warrant activity for the years ended* December 31, 2023*, and2022:

Upon the exercise of warrants, the Company will issue new shares of its common stock.

Note 8 —Common Stock Warrant Liabilities

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC480 and ASC815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC480, meet the definition of a liability pursuant to ASC480, and whether the warrants meet all of the requirements for equity classification under ASC815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that donot meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each consolidated balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a gain or loss on the consolidated statements of operations.

Warrant Liability

The Company has issued freestanding warrants to purchase shares of its common stock in connection with financing activities (* October 2022Warrants and January 2023Warrants as described in Note1*). The outstanding* October 2022Warrants and January 2023Warrants are classified as liabilities in the balance sheet as they contain terms for redemption of the underlying security that are outside the Company's control. The Company used a Monte Carlo simulation approach to initially value the October 2022Warrants, which allows to factor in the effect of a down-round protection feature, to value the October 2022Warrants at the time of issuance on October 11, 2022and for the period ending December 31, 2022.The Black-Scholes model was used to value the January 2023Warrants at the time of issuance on January 31, 2023.*The approach required management to estimate inputs including expected volatility and expected term and is most significantly impacted by the volatility of the Company's common stock price. These inputs are inherently subjective and require significant analysis and judgment to develop.

The fair value of the warrants is re-measured at each financial reporting date with any changes in fair value being recognized in change in fair value of warrant liabilities, a component of other income (expense), in the consolidated statements of operations and comprehensive income (loss). The Company will continue to re-measure the fair value of the* October 2022Warrant liabilities until exercise or expiration of the warrants on October 10, 2027and the January 2023Warrants until exercise or expiration of the warrants on January 31, 2026.The October 2022Warrants originally contained aone*-time down-round price protection feature. In connection with the* January 2023Registered Direct Offering and Private Placement, the down-round price protection feature was triggered and the exercise price for the October 2022Warrants was permanently adjusted to $1.55, which was the offering price for the January 2023Registered Direct Offering and Private Placement. The Black-Scholes model was used to value the October 2022Warrants and January 2023Warrants as of December 31, 2023.*

Fair Value of Warrant Liabilities

Warrant liabilities are categorized within Level3 of the fair value hierarchy and are measured at fair value on a recurring basis as follows (in thousands):

The key inputs for the* October 2022*Warrants for the Monte Carlo simulation and Black-Scholes model were as follows:

The key inputs for the* January 2023*Warrants using the Black-Scholes model were as follows:

Note 9 —Income Taxes

The Company has accumulated net losses since inception and hasnot recorded an income tax provision or benefit during the years ended* December 31, 2023* and2022.

A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:

The components of the net deferred tax asset as of* December 31, 2023* and2022 are the following (in thousands):

The Company has determined, based upon available evidence, that it is more likely thannot that the net deferred tax asset willnot be realized and, accordingly, has provided a full valuation allowance against it. A valuation allowance of approximately $35.7 million and $31.0 million was recorded as of* December 31, 2023* and2022, respectively.

As of* December 31, 2023*, the Company had federal and state net operating loss carryforwards of approximately $83.9 million and $147.4 million, respectively. Approximately $69.4 million of the federal net operating loss carryforwards and $0.6 million of the state net operating loss carryforwards can be carried forward indefinitely. The remaining $14.5 million of federal and $146.9 million of state net operating loss carryforwards will begin to expire, ifnot utilized, by2034 and2034, respectively. The Company has $2.9 million of research and development credit carryforwards, which will begin to expire, ifnot utilized, in2034. Utilization of the net operating loss and credit carryforwards* maybe subject to an annual limitation due to the ownership change limitations provided by Section382* of the Internal Revenue Code. The Company hasnot performed a Section382 analysis as of* December 31, 2023*.

There areno significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC740, which clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements, that have been recorded on the Company’s consolidated financial statements for the periods ended* December 31, 2023* and2022. The Company doesnot anticipate a material change to unrecognized tax benefits in the nexttwelve months.

F-20

Additionally, ASC740 provides guidance on the recognition of interest and penalties related to income taxes. There wereno interest or penalties related to income taxes that have been accrued or recognized as of and for the periods ended* December 31, 2023* and2022.

The federal and state tax returns for the years ended* December 31,*2020,2021, and2022 are currently open for examination under applicable federal and state income tax statues of limitations. The company isnot currently under examination.

Note10 — Subsequent Events

**** January 2024Warrant Inducement and Private Placement**

On* January 5, 2024,Avenue entered into (i) an inducement offer letter agreement (the “January 2023Investor Inducement Letter”) with a certain investor (the “January 2023Investor”) in connection with certain outstanding warrants to purchase up to an aggregate of 1,940,299 shares of Common Stock, originally issued to the January 2023Investor on January 31, 2023 (the “January 2023Warrants”) and (ii) an inducement offer letter agreement (the “November 2023Investor Inducement Letter Agreement” and, together with the January 2023Investor Inducement Letter, the “Inducement Letters”) with certain investors (the “November 2023Investors” and, together with the January 2023Investor, the “Holders”) in connection with certain outstanding warrants to purchase up to an aggregate of 14,600,000 shares of Common Stock, originally issued to the November 2023Investors on November 2, 2023 (the “November 2023Warrants” and, together with the January 2023Warrants, the “Existing Warrants”). The January 2023Warrants had an exercise price of $1.55 per share, and the November 2023Warrants had an exercise price of $0.3006 per share. Pursuant to the Inducement Letters, (i) the January 2023Investor agreed to exercise its January 2023Warrants for cash at a reduced exercise price of $0.3006 per share and (ii) the November 2023Investors agreed to exercise their November 2023*Warrants for cash at the existing exercise price of $0.3006, in each case in consideration for the Company’s agreement to issue in a private placement (x) Series A Warrants to purchase up to 16,540,299 shares of Common Stock and (y) Series B Warrants to purchase up to 16,540,299 shares of Common Stock. The gross proceeds to Avenue from the exercise of the warrants was approximately $5.0 million, before deducting placement agent fees and offering costs.

Nasdaq Hearing Panel Meeting

On* February 15, 2024,the Company met with the Nasdaq Hearings Panel regarding the outstanding Nasdaq deficiencies and on March 11, 2024,the Nasdaq Hearings Panel informed the Company that it granted the Company's request for an extension until May 20, 2024to demonstrate compliance with the Stockholders' Equity Requirement and Minimum-Bid Price Requirement. The Company is considering all options available to it to regain compliance with these rules; however, there can beno* assurance that the Company will be able to evidence compliance with the Stockholders' Equity Requirement and the Minimum-Bid Price Requirement within the extension period granted by the Panel.

Authorized Share Increase

On* January 9, 2024,stockholders holding a majority of the outstanding voting power of the Company executed and delivered to the Board of Directors of the Company a written consent approving, among other items, an increase in the number of shares of common stock, par value $0.0001 per share, authorized under the Company’s Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), from 75,000,000 to 200,000,000 (the “Authorized Shares Increase”). On February 20, 2024,*the Company filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State for the State of Delaware effectuating the Authorized Shares Increase.

Action by Written Consent of Stockholders to Effect Reverse Stock Split

Effective* March 6, 2024,the holders of a majority of the voting power of the capital stock of the Company executed a written consent approving a grant of discretionary authority to the board of directors of the Company to, without further stockholder approval, effect a reverse stock split of the Company’s issued and outstanding common stock within a range of between1*-for-30 and1-for-75 (with the board of directors being authorized to determinate the exact ratio) (the “Reverse Stock Split”) by filing an amendment (the “Reverse Split Amendment”) to the Company’s Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The written consent was signed by the holders of 3,133,886 shares of the Company’s common stock and 250,000 shares of the Company’s Class A Preferred Stock. Each share of common stock entitles the holder thereof toone vote on all matters submitted to stockholders and each share of Class A Preferred Stock has the voting power of1.1 times (A) the number of outstanding shares of common stock plus (B) the whole shares of Company common stock into which the outstanding shares of Class A Preferred Stock are convertible, divided by the number of outstanding shares of Class A Preferred Stock, or194.8 votes per share as of* March 6, 2024.Accordingly, the holders of approximately 56% of the voting power of the Company’s capital stock as of March 6, 2024*signed the written consent approving the Reverse Stock Split and the Reverse Split Amendment. The board of directors also approved the Reverse Stock Split and the Reverse Split Amendment.

F-21

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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