Quarterly report pursuant to Section 13 or 15(d)

Net Income (Loss) Per Share

Net Income (Loss) Per Share

9 Months Ended

Sep. 30, 2024

The Company had two classes of stock outstanding during the three and nine months ended September 30, 2024, common stock and preferred stock, and had only common stock outstanding during the three and nine months ended September 30, 2023. The Company computes net income (loss) per share using the two-class method, as the Series C Preferred Stock participates in distributions with the Company’s common stock. The two-class method of computing net income (loss) per share is an earnings allocation formula that determines net income (loss) for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings. As the Company had net income for the three and nine months ended September 30, 2024, the two-class method of calculating net income per share allocates a portion of the net income to the participating securities.

Basic net income (loss) per share for common stock is computed by dividing the sum of distributed and undistributed earnings by the weighted average number of shares outstanding for the period. The weighted average number of common shares outstanding as of September 30, 2023, includes the weighted average effect of pre-funded warrants, the exercise of which required nominal consideration for the delivery of the shares of common stock. There were no pre-funded warrants outstanding as of September 30, 2024.

Diluted net income (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; (ii) common stock to be issued upon the exercise of outstanding warrants, which are included under the “treasury stock method” when dilutive, and (iii) preferred stock under the if-converted method. While the impact of these items are generally anti-dilutive during periods of net loss, the Company will determine whether the common stock equivalents should be included in diluted loss per share pursuant to sequencing rules.

The following tables set forth the computation of basic and diluted net income (loss) per share of common stock for the three and nine months ended September 30, 2024 and September 30, 2023 (in thousands, except share and per share amounts):


	Three Months Ended September 30, 2024
	Common stock

Basic income per share:
Net income	$	23,037
Net income attributed to Series C Preferred Stock	(17,575)
Net income - basic	$	5,462
Weighted average shares	5,546,257
Basic net income per share	$	0.98

Diluted loss per share:
Numerator:
Net income - basic	$	5,462
Change in fair value of warrant liability	(36,025)
Net loss - diluted	$	(30,563)

Denominator:
Effect of dilutive securities:
Weighted average shares - basic	5,546,257
Common shares issuable for warrants	5,237,780
Weighted average shares - diluted	10,784,037
Diluted net loss per share	$	(2.83)


	Nine Months Ended September 30, 2024
	Common stock

Basic income per share:
Net income	$	210
Net income attributed to Series C Preferred Stock	(177)
Net income - basic	$	33
Weighted average shares	2,491,114
Basic net income per share	$	0.01

Diluted loss per share:
Numerator:
Net income - basic	$	33
Change in fair value of warrant liability	(148,071)
Net loss - diluted	$	(148,038)

Denominator:
Effect of dilutive securities:
Weighted average shares - basic	2,491,114
Common shares issuable for warrants	4,049,849
Weighted average shares - diluted	6,540,963
Diluted net loss per share	$	(22.63)


	Three Months Ended September 30, 2023
	Common stock

Net loss	$	(5,228)
Weighted average shares	194,851
Basic and diluted net loss per share	$	(26.83)


	Nine Months Ended September 30, 2023
	Common stock

Net loss	$	(23,376)
Weighted average shares	101,173
Basic and diluted net loss per share	$	(231.05)

The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the three and nine months ended September 30, 2024 and 2023, as they could have been anti-dilutive:


	Three and Nine Months Ended
	September 30,
	20243	2023
Stock options	2,000,056	7,706
Warrants on common stock1	148	17,237
Series C Preferred Stock (as-convertible to common stock)2	13,709,653	—
Restricted Stock Units	632,100	—

1 The weighted average number of common shares outstanding for the three and nine months ended September 30, 2023 include the weighted average effect of 281 and 2,677 pre-funded warrants, respectively, because their exercise price was nominal. There were no pre-funded warrants outstanding as of September 30, 2024 and 2023.

2 Each share of the Company’s Series C Preferred Stock is convertible to 1,000 shares of common stock, subject to certain beneficial ownership limitations.

3 Pursuant to the Almata Transaction, the Company is required to pay potential development milestone payments to the former AlmataBio stockholders in cash or Avalo stock at the election of the former AlmataBio stockholders; refer to Notes 3 and 13 for more information. In the event of share settlement, the number of Avalo shares delivered will vary based on the Company’s stock price. These additional shares are not included in the computation of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2024 pursuant to the guidance on contingently issuable shares.