AVENUE THERAPEUTICS INC

AVENUE THERAPEUTICS, INC.

NOTES TO UNAUDITED CONDENSED 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”). 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.

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 ("common stock"), 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.

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.

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 September 30, 2024*, the Company had an accumulated deficit of $101.0 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 Bio, Inc. ("Baergic"), the Company will need to secure additional funds through equity or debt offerings, including through at-the-market ("ATM") 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 cause 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.

Note2 - Significant Accounting Policies

Basis of Presentation and 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 unaudited interim condensed 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.

Certain information and footnote disclosures normally included in the Company’s annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited interim condensed financial statement results arenot necessarily indicative of results to be expected for the full fiscal year or any future period. Therefore, these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the fiscal year ended* December 31, 2023,which were included in the Company’s Annual Report on Form10*-K (the*“2023* Form10-K”) and filed with the U.S. Securities and Exchange Commission (“SEC”) on* March 18, 2024.*

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 and assessing performance. The Company views its operations and manages its business inone operating and reportable segment.

Use of Estimates

The preparation of unaudited condensed 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.

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.

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.

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.

Net Loss per Share

Net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Net loss attributable to common stockholders consisted of net loss, as adjusted for deemed dividends. The Company recorded a deemed dividend of $0 and $8.8 million, respectively, for the modification of certain of its existing warrants and issuance of warrants during thethree andnine months ended* September 30, 2024 (see Note7*). Diluted net loss per share excludes unvested restricted stock, preferred shares and the effect of shares of common stock to be issued upon the exercise of stock options and warrants, as their inclusion would be anti-dilutive. 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:

The 33,412 shares held in abeyance from the* May 2024Warrant Inducement (as defined in Note7*) as of* September 30, 2024were included in the September 30, 2024computation of diluted net loss per share for thethree* andnine months ended* September 30, 2024sinceno* additional consideration is due upon issuance of the shares.

Summary of Significant Accounting Policies

There have beenno material changes in the Company’s significant accounting policies to those previously disclosed in the2023 Form10-K.

Accounting StandardsNot Yet Adopted**

In* November 2023,the FASB issued ASUNo.* 2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, which requires that an entity report segment information in accordance with Topic280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*The Company is currently evaluating the impact of the new standard on its financial statement disclosures.

In* December 2023,the FASB issued ASUNo.* 2023-09, 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 that this guidance will have on its financial statement disclosures.

In* November 2024,the FASB issued ASUNo.* 2024-03, Income Statement–* Reporting Comprehensive Income*–* Expense Disaggregation Disclosures (Subtopic220-40): Disaggregation of Income Statement Expenses*, which requires new financial statement disclosures in tabular format, in the notes to financial statements, of specified information about certain costs and expenses. The amendments in this update donot change or remove current expense disclosure requirements. The amendments in this update are effective for fiscal years beginning after* December 15, 2026,and interim periods within fiscal years beginning after December 15, 2027.*Early adoption is permitted. The Company is currently evaluating the impact of the new standard on its financial statement disclosures.

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Note 3 —Licenses/Supplier Agreements

IV Tramadol License

Effective as of* February17,* 2015, Fortress transferred the Revogenex license and all other rights and obligations under the IV Tramadol License Agreement to the Company, pursuant to the terms of the Founders Agreement. In connection with the terms of the IV Tramadol 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 U.S. Food and Drug Administration ("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, as well as issued common shares of Baergic of approximately 20% and 5% of Baergic 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 each milestone. Commercial and sales-based milestone payments totaling approximately $151 million are due upon achievement of each milestone, as well as royalty payments in the low to high single digits on any future aggregate, annual, worldwide net sales.

AnnJi License Agreement

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 for certain intellectual property rights pertaining toAJ201.* 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 11,089 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 3,688 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.*

Note 4 —Related Party Agreements

Founders Agreement and Management Services Agreement with Fortress

In* February 2015,Fortress entered into a Management Services Agreement (the "MSA") with the Company to provide services for the Company pursuant to the terms of the MSA. Expenses related to the MSA are recorded 50% in research and development expenses and 50% in general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations. For thethree* months ended* September 30, 2024and2023,* the Company recorded expense related to the MSA of $0.1 million and $0.1 million, respectively. For thenine months ended* September 30, 2024and2023,* the Company recorded expense related to the MSA of $0.4 million and $0.4 million, respectively.

In* February 2015,Fortress entered into a Founders Agreement with the Company, under which the Company agreed to: (i) issue annually to Fortress, shares of common stock equal totwo* andone half percent (2.5%) of the fully-diluted outstanding equity of the Company at the time of issuance (the "Annual Equity Fee") and (ii) issue shares of the common stock equal totwo andone half percent (2.5%) of the gross amount of any equity or debt financing (the "Financing Equity Fee").

Annual Equity Fee

For thethree andnine months ended* September 30, 2024,the Company didnot have an Annual Equity Fee expense. There were 22,476 shares of the Company's common stock issued to Fortress in January 2024related to the2023* Annual Equity Fee.

For thethree andnine months ended* September 30, 2023,the Company didnot have an Annual Equity Fee expense. There were 3,085 shares of the Company's common stock issued to Fortress in January 2023related to the2022* Annual Equity Fee.

Financing Equity Fee

For thethree months ended* September 30, 2024,the Company recorded a Financing Equity Fee of $14,000 and common stock issuable to Fortress of 4,023 shares. For thenine* months ended* September 30, 2024,*the Company recorded a Financing Equity Fee of $0.2 million and issued 31,110 shares of the Company's common stock to Fortress.

For thethree months ended* September 30, 2023,the Company recorded a Financing Equity Fee of $0.1 million and issued 5,579 shares of the Company's common stock to Fortress. For thenine* months ended* September 30, 2023,*the Company recorded a Financing Equity Fee of $0.2 million and issued 7,491 shares of the Company's common stock to Fortress.

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.*

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 ends 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 Avenue-Baergic 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 Avenue-Baergic 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.

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Note 5 —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 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 will accrue the most likely amount of such loss, and if such amount isnot determinable, then the Company will accrue the minimum of the range of probable loss. As of* September 30, 2024,there wasno* litigation against the Company.

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Note7 - Stockholder's 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.

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, as 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 splits by the Company in* September 2022and April 2024,the Class A Preferred Stock has a Conversion Ratio of 1,125 Class A Preferred toone* share of Common Stock.

Common Stock

On* January 9, 2024,the 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 authorized under the Certificate of Incorporation, from 75,000,000 to 200,000,000. On February 20, 2024,*the Company filed the Certificate of Amendment with the Secretary of State for the State of Delaware effectuating the Authorized Shares Increase.

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 the stockholders is 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.

Reverse Stock Split

On* April 25, 2024,the Company filed an amendment (the “Reverse Split Amendment”) to its Third Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the1*-for-75 reverse stock split of the Company's shares of common stock ("Reverse Stock Split"). As a result of the Reverse Stock Split, every 75 shares of common stock outstanding immediately prior to effectiveness of the Reverse Stock Split were combined and converted intoone share of common stock without any change in the par value per share. The Reverse Stock Split became effective on* April 26, 2024,and the common stock was quoted on the Nasdaq Stock Market on a post-split basis at the open of business on April 26, 2024.*No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who would have otherwise been entitled to a fraction ofone share of common stock as a result of the Reverse Stock Split instead receivedone whole share of common stock. The Company issued 86,518 shares of common stock to shareholders who had been entitled to a fraction ofone share.

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.

Capital Raises

2021 Shelf

On* December 7, 2021,the Company filed a shelf registration statement (FileNo.* 333-261520) on Form S-3, which was declared effective on* December 10, 2021 (the "Shelf"). Approximately $24.1 million of securities remain available for sale under the2021* Shelf as of* September 30, 2024.*

** January 2024Warrant Inducement and Private Placement

On* January 5, 2024,the Company 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 25,871 of the Company’s 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 “January 2024Warrant Inducement”) with certain investors (the “November 2023Investors” and, together with the January 2023Investor, the “January 2024Holders”) in connection with certain outstanding warrants to purchase up to an aggregate of 194,667 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 $116.25 per share, and the November 2023*Warrants had an exercise price of $22.545 per share.

Pursuant to the* January 2024Warrant Inducement, (i) the January 2023Investor agreed to exercise for cash its January 2023Warrants at a reduced exercise price of $22.545 per share and (ii) the November 2023Investors agreed to exercise for cash their November 2023Warrants at the existing exercise price of $22.545 in consideration for the Company’s agreement to issue in a private placement (x) new Series A common stock purchase warrants (the “New Series A Warrants”) to purchase up to 220,538 shares of common stock (the “New Series A Warrants Shares”) and (y) new Series B common stock purchase warrants (the “New Series B Warrants” and, together with the New Series A Warrants, the “January 2024Warrants”) to purchase up to 220,538 shares of common stock (the “New Series B Warrants Shares”). The New Series A Warrants will expire five years following the issuance date and the New Series B Warrants will expireeighteen* months following the issuance date.

The* January 2023Warrants, which were liability classified, were revalued on January 5, 2024using the Black-Scholes Model to calculate the difference in fair value as a result of the change in exercise price. The difference in fair value of $0.1 million was recorded as a change in fair value of warrant liabilities in the Condensed Consolidated Statements of Operations (see Note8*). The issuance of the* January 2024Warrants was considered as part of the cost of the inducement and the January 2024Warrants were valued using the Black-Scholes Model with the fair value being allocated between the January 2023Warrants and November 2023Warrants on a weighted basis. The approximately $0.6 million of the January 2024Warrants fair value was allocated to the January 2023warrants and recorded as a loss on common stock warrant liabilities in the Condensed Consolidated Statements of Operations with a corresponding offset to additional paid-in-capital. Approximately $4.3 million of the January 2024Warrant fair value was allocated to the November 2023Warrants and deemed to be a dividend and recorded to additional paid-in-capital because the Company had an accumulated deficit on the exercise date. The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed consolidated statements of operations (see Note2*).

The Company received aggregate net proceeds of approximately $4.5 million from the exercise of the Existing Warrants by the* January 2024*Holders, after deducting placement agent fees and other expenses payable by the Company.

The Company filed a registration statement on Form S-3 (FileNo. 333-276671) with the SEC providing for the resale of the* January 2024Warrant Shares (the “Resale Registration Statement”) on January 24, 2024,which was declared effective on February 1, 2024.*

The key inputs for the Black-Scholes Model calculations on* January 5, 2024*were as follows:

** May 2024Warrant Inducement and Private Placement

On* April 28, 2024,the Company entered into inducement offer letter agreements (the “May 2024Warrant Inducement”) with (i) certain investors (the “October 2022Investors”) that held certain outstanding October 2022Warrants to purchase up to an aggregate of 27,271 shares of the Company’s common stock; (ii) certain investors (the “MayInducement November 2023Investors”) that hold November 2023Warrants to purchase up to an aggregate of 221,333 shares of common stock; and (iii) certain investors (the “January 2024Investors” and, collectively with the October 2022Investors and MayInducement November 2023Investors, the “May 2024Holders”) that hold January 2024Warrants to purchase up to an aggregate of 441,076 shares of common stock. We refer to the exercised January 2024Warrants collectively with the October 2022Warrants and November 2023Warrants as the "May 2024Exercised Warrants"). The October 2022Warrants had an exercise price of $116.25 per share, the November 2023Warrants had an exercise price of $22.545 per share, and the January 2024Warrants had an exercise price of $22.545 per share. Pursuant to the May 2024Warrant Inducement, the May 2024Holders agreed to exercise for cash the May 2024Exercised Warrants at a reduced exercise price of $6.20 per share in partial consideration for the Company’s agreement to issue in a private placement (x) new Series C Common Stock purchase warrants (the “New Series C Warrants”) to purchase up to 689,680 shares of common stock (the “New Series C Warrant Shares”) and (y) new Series D Common Stock Purchase Warrants (the “New Series D Warrants” and, together with the New Series C Warrants, the “May 2024Warrants”) to purchase up to 689,680 shares of common stock (the “New Series D Warrant Shares” and, together with the New Series C Warrant Shares, the “May 2024Warrant Shares”). The May 2024Holders also agreed to pay the Company $0.125 per May 2024Warrant Share (the “Additional Warrant Consideration”). The closing of the transactions contemplated pursuant to the May 2024Warrant Inducement occurred on May 1, 2024.*

The* October 2022Warrants, which were liability classified, were revalued on May 1, 2024using the Black-Scholes Model to calculate the difference in fair value as a result of the change in exercise price. The difference in fair value of $0.1 million was recorded as a change in fair value of warrant liabilities in the Condensed Consolidated Statements of Operations (see Note8*). The issuance of the* May 2024Warrants was considered as part of the cost of the inducement and the May 2024Warrants were valued using the Black-Scholes Model with the fair value being allocated between the October 2022Warrants, November 2023Warrants and January 2024Warrants on a weighted basis. The approximately $0.2 million of the May**2024* Warrants fair value was allocated to the* October 2022warrants and recorded as a loss on common stock warrant liabilities in the Condensed Consolidated Statements of Operations with a corresponding offset to additional paid-in-capital. Approximately $4.5 million of the May 2024Warrant fair value was allocated to the November 2023Warrants and January 2024Warrants and deemed to be a dividend and recorded to additional paid-in-capital because the Company had an accumulated deficit on the exercise date. The deemed dividend was included in net loss attributable to common stockholders in the calculation of net loss per share in the condensed consolidated statements of operations (see Note2*).

The Company received net proceeds of approximately $3.7 million from the exercise of the* May 2024Exercised Warrants by the May 2024*Holders and the payment of the Additional Warrant Consideration, after deducting placement agent fees and other expenses payable by the Company.

The Company filed a registration statement on Form S-3 (FileNo. 333-279125) with the SEC providing for the resale of the* May 2024New Warrant Shares (the “May 2024Resale Registration Statement”) on May 6, 2024,which was declared effective on May 10, 2024.*

The key inputs for the Black-Scholes Model calculations on* May 1, 2024*were as follows:

ATM Facility

On* May 10, 2024,the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co. LLC (the “ATM Manager”) under which the Company mayoffer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, through or to the ATM Manager. The offer and sale of the shares will be made pursuant to a previously filed shelf registration statement on Form S-3 (FileNo.* 333-261520), originally filed with the SEC on* December 7, 2021and declared effective by the SEC on December 10, 2021,and the related prospectus supplement dated May 10, 2024 (including such replacement registration statement as maybe filed with the SEC, the “ATM Registration Statement”) and filed with the SEC on such date pursuant to Rule424*(b) under the Securities Act of1933, as amended (the “Securities Act”). As a result of the limitations of General InstructionI.B.6 of Form S-3, the Company* may*currently sell up to a maximum of $3,850,000 of its shares pursuant to the ATM Agreement.

Under the ATM Agreement, the ATM Manager* maysell shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule415*(a)(4) under the Securities Act. The ATM Manager will use commercially reasonable efforts to sell the shares from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company* mayimpose). The Company agreed to pay the ATM Manager a commission of 3.0% of the gross proceeds from the sales of shares sold through the ATM Manager under the ATM Agreement and has provided the ATM Manager with customary indemnification and contribution rights. The Company also agreed to reimburse the ATM Manager for certain expenses incurred in connection with the ATM Agreement. The Company and the ATM Manager may*each terminate the ATM Agreement at any time upon specified prior written notice.

For thethree months andnine months ended* September 30, 2024,*the Company sold an aggregate of 160,934 shares and 245,617 shares of its common stock pursuant to the ATM Agreement, resulting in net proceeds of approximately $0.6 million and $0.9 million, respectively, after deducting underwriting discounts

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 the Company's stockholders and, in* December 2021,the Company’s stockholders approved an amendment to the plan to increase the number of authorized shares issuable to 3,556 shares. On January 30, 2023,the Company’s stockholders approved an amendment to the2015* Incentive Plan to increase the number of authorized shares issuable to 70,223 shares. On* June 24, 2024,the Company’s stockholders approved an amendment to the2015* Incentive Plan to increase the number of authorized shares issuable to 5,070,223 shares, which extended the term of the2015 Incentive Plan to* June 24, 2034,to increase the limit of shares that maybe issued upon exercise of incentive stock options by 5,000,000 shares, and to increase the annual share limit awards for non-employee directors to 500,000. 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. The2015 Incentive Plan authorizes grants to issue up to 5,070,223 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 4,575,701 shares at* September 30, 2024*.

Restricted Stock Units and Restricted Stock Awards

The following table summarizes the restricted stock unit and award activity during thenine months ended* September 30, 2024*:

At* September 30, 2024*, the Company had unrecognized stock-based compensation expense related to restricted stock units and restricted stock awards of $0.5 million, which is expected to be recognized over the remaining weighted-average vesting period of 1.1 years. This amount doesnot include, as of* September 30, 2024*,45 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 Company offers certain executives and key employees the opportunity to defer settlement of vested restricted stock units as part of our nonqualified deferred compensation plan. As of* September 30, 2024,*the Company had 235,000 outstanding deferred restricted stock units.

Stock Options

The following table summarizes stock option activity during thenine months ended* September 30, 2024*:

There were 234,000 options granted in thenine months ended* September 30, 2024.The weighted-average grant date fair value of options granted during thenine* months ended* September 30, 2024and2023* was $2.15 and $85.50, respectively. The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company's common stock for those options that had exercise prices lower than the fair value of the Company's common stock. As of* September 30, 2024*, the total compensation cost related to non-vested options awardsnot yet recognized is approximately $0.9 million with a weighted average remaining vesting period of 1.3 years.

The Company estimated the fair value of stock options granted in the periods presented utilizing a Black-Scholes option-pricing model utilizing the following assumptions:

Stock-based compensation expense has been reported in the Company's condensed consolidated statements of operations as follows:

Stock Warrants

The following table summarizes the warrant activity for thenine months ended* September 30, 2024and2023*:

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

InvaGen Share Repurchase

Under the Share Repurchase Agreement, the Company agreed to pay InvaGen an additional amount as a contingent fee, payable in the form ofseven and a half percent (7.5%) of the proceeds of future financings, up to $4.0 million. In connection with the closing of the* January 2024Warrant Inducement, the May 2024Warrant Inducement, and common share sales pursuant to the ATM Agreement, the Company made payments totaling approximately $0.7 million to InvaGen during thenine* months ended* September 30, 2024.*Payments to InvaGen are recorded in general and administrative expense on the condensed consolidated statements of operations.

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Note8 - 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 condensed consolidated statements of operations.

Warrant Liability

The Company has previously issued freestanding warrants to purchase shares of its common stock in connection with financing activities. The outstanding* October 2022Warrants are classified as liabilities on the balance sheet as they contain terms for redemption of the underlying security that are outside the Company's control. The January 2023Warrants classified as liabilities were fully exercised during thethree* months ended* March 31, 2024.*The Black-Scholes Model is used to value the warrants classified as liabilities and 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 was measured at the time of issuance and 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, 2027.*

In* January**2024,* the Company entered into an inducement letter with an investor from a registered direct offering in* January 2023which provided for the immediate exercise of certain of its existing outstanding warrants to exercise for cash an aggregate of 25,871 shares of the Company’s common stock at a reduced exercise price of $22.545 per share. Included in the exercise were the entirety of the January 2023Warrants. The Company revalued the January 2023Warrants on January 5, 2024,resulting in a fair value of $0.3 million. The $0.1 million increase in the fair value of the common stock warrant liability resulted in an offsetting change in fair value of warrant liabilities in the unaudited condensed consolidated statements of operations (see Note7*).

In* May 2024,the Company closed on the May 2024Warrant Inducement with the May 2024Holders which provided for the immediate exercise of certain of its existing outstanding warrants to exercise for cash an aggregate of 689,680 shares of the Company's common stock with an exercise price of $6.20. Included in the exercise were certain October 2022Warrants. The Company revalued the October 2022Warrants on May 1, 2024,resulting in a fair value of $0.1 million. The $0.1 million decrease in fair value of the common stock warrant liability resulted in an offsetting change in fair value of warrant liabilities in the unaudited condensed consolidated statement of operations (see Note7*).

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 using the Black-Scholes model were as follows:

Note9 - Subsequent Events

On* November 13, 2024,*the Company entered into a Subscription and Forgiveness Agreement with Fortress, whereby Fortress agreed to convert 50% of a total of $0.5 million owed by the Company under the MSA into newly issued common stock of the Company and forgive the remaining 50% of the accrued balance. Therefore, the Company issued a total of 122,850 shares based on the closing price of $2.035 on the day prior to the execution of the agreement and reduced its liabilities associated with accounts payable and accrued expenses by $0.5 million.

Subsequent to the period ended* September 30, 2024,the Company sold an aggregate of 274,063 shares of its common stock pursuant to the ATM Agreement, resulting in net proceeds of approximately $0.6 million after deducting underwriting discounts. As a result of the foregoing transactions and as of the date of this filing, the Company believes it has stockholders’ equity of at least$2.5* million and therefore continues to satisfy the minimum Nasdaq listing requirement set forth in Nasdaq Listing Rule5550(b)(1).