Quarterly report pursuant to Section 13 or 15(d)

Net Loss Per Share

Net Loss Per Share

3 Months Ended

Mar. 31, 2022

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 only common stock outstanding during the three months ended March 31, 2022. The Company had two classes of stock outstanding during the three months ended March 31, 2021; common stock and preferred stock. The preferred stock outstanding

during the prior period converted to shares of common stock on a 1-for-5 ratio and had the same rights, preferences and privileges as the Company’s common stock other than it held no voting rights. In April 2021, Armistice Capital, LLC, (“Armistice”), which is a significant stockholder of the Company and whose chief investment officer, Steven Boyd, and managing director, Keith Maher, serve on the Board of the Company, converted the then outstanding 1,257,143 shares of convertible preferred stock into 6,285,715 shares of Avalo’s common stock (refer to Note 10 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. Therefore, basic and diluted EPS is provided below for common stock for the three months ended March 31, 2022, and both common stock and preferred stock for the three months ended March 31, 2021.

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 assumed the convertible preferred stock had been converted to common stock. The weighted average number of common shares outstanding as of March 31, 2022 and 2021 include 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 10 for more information).

Diluted net loss 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 per share of common stock for the three months ended March 31, 2022, and common stock and preferred stock for the three months ended March 31, 2021 (in thousands, except share and per share amounts):


	Three Months Ended
	March 31, 2022
	Common stock
	Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(22,051)	$	—
Denominator:
Weighted average shares	112,794,203		112,794,203
Basic and diluted net loss per share	$	(0.20)	$	(0.00)


	Three Months Ended
	March 31, 2021
	Common stock				Preferred stock
	Continuing Operations		Discontinued Operations		Continuing Operations		Discontinued Operations
Numerator:
Allocation of undistributed net loss	$	(28,548)	$	(99)	$	(2,026)	$	(7)
Denominator:
Weighted average shares	88,576,559		88,576,559		1,257,143		1,257,143
Basic and diluted net loss per share	$	(0.32)	$	(0.00)	$	(1.61)	$	(0.01)

The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the three months ended March 31, 2022 and 2021, as they could have been anti-dilutive:


	Three Months Ended
	March 31,
	2022	2021
Stock options	17,088,040	12,944,891
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 March 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 only nominal consideration ($0.001 per share exercise price for each pre-funded warrant). During 2021, the holder exercised 308,880 of the pre-funded warrants. As of March 31, 2022, the weighted average number of common shares outstanding includes the weighted average effect of the remaining 1,368,043 pre-funded warrants outstanding. These pre-funded warrants are not included in the table above.