Annual report pursuant to Section 13 and 15(d)

Net Loss Per Share

Net Loss Per Share

12 Months Ended

Dec. 31, 2021

The Company computes earnings per share (“EPS”) using the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings.

The Company had two classes of stock outstanding during the year ended December 31, 2021; common stock and preferred stock. The convertible preferred stock outstanding during the period converted to shares of common stock on a 1-for-5 ratio and had the same rights, preferences, and privileges as common stock other than it held no voting rights. In April 2021, Armistice converted the remaining 1,257,143 shares of convertible preferred stock into 6,285,715 shares of Avalo’s common stock (refer to Note 11 for more information).

Under the two-class method, the convertible preferred stock was considered a separate class of stock until the time it was converted to common shares for EPS purposes and therefore basic and diluted EPS is provided below for both common stock and preferred stock for the years ended December 31, 2021 and 2020.

EPS for common stock and EPS for preferred stock is computed by dividing the sum of distributed earnings and undistributed earnings for each class of stock by the weighted average number of shares outstanding for each class of stock for the period. In applying the two-class method, undistributed earnings are allocated to common stock and preferred stock based on the weighted average shares outstanding during the period, which assumes the convertible preferred stock has been converted to common stock. The weighted average number of common shares outstanding as of December 31, 2021 includes the weighted average effect of the pre-funded warrants issued in connection with the underwritten public offering that closed in January 2021, the exercise of which requires nominal consideration for the delivery of the shares of common stock (refer to Note 11 for more information).

Diluted net (loss) income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock units, which are included under the “treasury stock method” when dilutive; and (ii) common stock to be issued upon the exercise of outstanding warrants, which are included under the “treasury stock method” when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In periods of net loss, losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company's losses.

The following tables set forth the computation of basic and diluted net (loss) income per share of common stock for and preferred stock for the years ended December 31, 2021 and 2020 (in thousands, except per share amounts):


	Year Ended
	December 31, 2021
	Common stock				Preferred Stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(82,849)	$	(27)	$	(1,500)	$	—
Denominator:
Weighted average shares	99,888,447		99,888,447		361,644		361,644
Basic and diluted net (loss) income per share	$	(0.83)	$	0.00	$	(4.15)	$	0.00


	Year Ended
	December 31, 2020
	Common stock				Preferred Stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net (loss) income	$	(58,440)	$	802	$	(5,944)	$	82
Denominator:
Weighted average shares	66,688,464		66,688,464		1,356,597		1,356,597
Basic and diluted net (loss) income per share	$	(0.87)	$	0.01	$	(4.38)	$	0.06

The following outstanding securities at December 31, 2021 and 2020 have been excluded from the computation of diluted weighted shares outstanding, as they could have been anti-dilutive:


	December 31,
	2021	2020
Stock options	13,650,978	9,830,674
Warrants on common stock1	4,406,224	4,002,380
Restricted Stock Units	11,250	155,833

1 The weighted average number of common shares outstanding as of December 31, 2021 includes the weighted average effect of the 1,676,923 pre-funded warrants issued in connection with the underwritten public offering that closed in January 2021 because the exercise of such warrants requires nominal consideration ($0.001 per share exercise price for each pre-funded warrant). 308,880 of the pre-funded warrants have been exercised. Therefore, the 1,368,043 pre-funded warrants outstanding as of December 31, 2021 are not included in the table above.