Item 7. Management’s Discussion and Analysis of the Results of Operations

Forward-Looking Statements

Statements in the following discussion and throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,” “will,” “should,” “intend,” “believe,” and similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. Please see “Forward-Looking Statements” at the beginning of this Form 10-K.

The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Form 10-K. We undertake no obligation to update any forward-looking statements in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Overview

Avenue Therapeutics, Inc. (“Avenue” or the “Company”) is a specialty pharmaceutical company focused on the development and commercialization of therapies for the treatment of rare and neurologic diseases. Our product candidates include AJ201 for the treatment of spinal and bulbar muscular atrophy (“SBMA”), intravenous (IV) Tramadol (“IV Tramadol”) for the treatment of post-operative acute pain, and BAER-101 for the treatment of epilepsy and panic disorders.

AJ201

In February 2023, we announced that we entered into a license agreement (the “License Agreement”) with AnnJi Pharmaceutical Co., Ltd. (“AnnJi”) whereby the Company obtained an exclusive license from AnnJi to intellectual property rights pertaining to the molecule known as JM17, which activates Nrf1 and Nrf2, enhances androgen receptor degradation and underlies AJ201, a clinical product candidate currently in a Phase 1b/2a clinical trial in the United States (“U.S.”) for the treatment of spinal and bulbar muscular atrophy (“SBMA”), also known as Kennedy’s Disease.

Under the License Agreement, in exchange for exclusive rights to the intellectual property underlying the AJ201 product candidate, the Company will pay an initial cash license fee of $3.0 million, of which $2.0 million is payable within 60 days and $1 million payable within 180 days after the effective date of the License Agreement. The Company is also obligated to issue shares of its common stock under the Subscription Agreement (described below) and make additional payments over the course of the License Agreement including reimbursement payments of up to $10.8 million in connection with the product’s Phase 1b/2a clinical trial.

In connection with the signing of the License Agreement, the Company agreed to issue 831,618 shares of its common stock to AnnJi (the “First Tranche Shares”), and then to issue an additional 276,652 shares of Common Stock upon enrollment of the eighth patient in the ongoing Phase 1b/2a SBMA clinical trial (the “Second Tranche Shares” and, together with the First Tranche Shares, the “Consideration Shares”). The license provided under the License Agreement is exclusive as to all oral forms of AJ201 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 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 of AJ201 exclusively through AnnJi. The Company and AnnJi entered into a subscription agreement, dated as of February 28, 2023 (the “Subscription Agreement”) that provides for the issuance of First Tranche Shares, which contains customary representations and warranties of the Company and AnnJi, respectively, and is subject to customary closing conditions. The Company and AnnJi will enter into a subsequent subscription agreement, in substantially the same form as the Subscription Agreement, with respect to the issuance of the Second Tranche Shares. Also in connection with execution of the License Agreement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with AnnJi. Pursuant to the Registration Rights Agreement, the Company will be required to file, on or prior to August 28, 2023, a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) to register the resale of the Consideration Shares.

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IV Tramadol

On February 15, 2022, we had our Advisory Committee meeting with the FDA regarding IV Tramadol. In the final part of the public meeting, the Advisory Committee voted yes or no on the following question: “Has the Applicant submitted adequate information to support the position that the benefits of their product outweigh the risks for the management of acute pain severe enough to require an opioid analgesic in an inpatient setting?” The results were 8 yes votes and 14 no votes. On March 18, 2022, we received an Appeal Denied Letter from the OND in response to the FDRR. On August 31, 2022, the Company disclosed that, on June 17, 2022, following the receipt of the Letter, the Company submitted a Type A Meeting Request and related briefing documents to the FDA. The meeting was granted by the Division of Anesthesia, Analgesia, and Addiction Products (“DAAAP”) on June 27, 2022, and scheduled for August 9, 2022. The Company submitted a briefing document presenting a study design that the Company believed has the potential to address the comments and deficiencies noted in the Letter and sought the DAAAP’s guidance to refine the study design that would support a resubmission of a New Drug Application for the Company’s current lead product candidate, intravenous Tramadol. The meeting on August 9, 2022 was a collaborative discussion on the study design and potential path forward. We incorporated the FDA’s suggestions from the meeting minutes and submitted a detailed study protocol that could form the basis for the submission of a complete response to the Second CRL.

We announced on March 8, 2023 that the Company would participate in a Type C meeting with the FDA on March 9, 2023 to discuss a proposed study protocol to assess the risk of respiratory depression related to opioid stacking on IV Tramadol relative to an approved opioid analgesic. We continue to evaluate next steps with regard to IV Tramadol.

BAER-101

We recently expanded our business with the acquisition of Baergic Bio, Inc. (“Baergic”) and its asset BAER-101, which would strategically align with Avenue’s goals of building a rare and neurologic pipeline. On May 11, 2022, we 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) in Baergic to us. The acquisition was completed on November 8, 2022 and as a result, Baergic is currently a majority-controlled and owned private subsidiary company of Avenue.

Baergic is a clinical-stage pharmaceutical company founded in December 2019 that focuses on the development of pharmaceutical products for the treatment of neurologic disorders. Baergic’s pipeline currently consists of a single compound, BAER-101, a novel α2/3–subtype-selective GABA A positive allosteric modulator (“PAM”). BAER-101 (formally known as AZD7325) was originally developed by AstraZeneca and has an established safety profile in early clinical trials including over 700 patients.

Under the Contribution Agreement, Fortress also agreed to assign to us certain intercompany agreements existing between Fortress and Baergic, including a Founders Agreement and Management Services Agreement. 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 no less than $7.5 million, (ii) the agreement by minority Avenue shareholder InvaGen Pharmaceuticals Inc. (“InvaGen”) to (A) have 100% of its shares in us repurchased by us and (B) terminate certain of the agreements into which it entered with us and/or Fortress in connection with InvaGen’s 2019 equity investment in us, which will eliminate certain negative consent rights of InvaGen over us and restore certain rights and privileges of Fortress in us (all upon terms to be agreed upon with InvaGen); and (iii) the sustained listing of our common stock on Nasdaq.

The Baergic transaction expands our development portfolio within neurologic diseases. 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.

Our net loss for the years ended December 31, 2022 and 2021 was approximately $3.6 million and $3.7 million, respectively. As of December 31, 2022, we had an accumulated deficit of approximately $80.6 million. Substantially all our net losses resulted from costs incurred in connection with our research and development program of IV Tramadol and from general and administrative costs associated with our operations.

We expect to continue to incur research and development costs and increased general and administration related costs and incur operating losses for at least the next several years as we continue the development of our product candidates.

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We intend to obtain additional capital through the sale of debt or equity financings or other arrangements to fund our operations, research and development activity or regulatory approval activity; however, there can be no assurance that we will be able to raise the necessary capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of our common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

We are a majority-controlled subsidiary of Fortress. For related party transactions, see Note 4 to our audited consolidated financial statements included herein.

Avenue Therapeutics, Inc. was incorporated in Delaware on February 9, 2015. Our executive offices are located at 1111 Kane Concourse, Suite 301, Bay Harbor Islands, FL 33154. Our telephone number is (781) 652-4500, and our email address is info@avenuetx.com.

Recent Developments

Chief Executive Officer

On August 1, 2022, the Board approved the appointment of Dr. Alexandra MacLean as Chief Executive Officer of the Company. With the appointment of Dr. MacLean as the new Chief Executive Officer, Mr. David Jin ended his term as interim Chief Executive Officer and will continue his responsibilities as Interim Chief Financial Officer and Chief Operating Officer of the Company.

NASDAQ Deficiency Letter

On May 24, 2022, we received a deficiency letter (the “Nasdaq Letter”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”), notifying us that we are not in compliance with Nasdaq Listing Rule 5550(b)(1), which requires us to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing on The Nasdaq Capital Market (the “Stockholders’ Equity Requirement”), nor in compliance with either of the alternative listing standards, market value of listed securities of at least $35 million or net income of $500,000 from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years. Our failure to comply with the Stockholders’ Equity Requirement was based on the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, reporting the stockholders’ equity of $1,159,000. Pursuant to the Nasdaq Letter, we had 45 calendar days from the date of the Nasdaq Letter to submit a plan to regain compliance. On July 8, 2022, we submitted a compliance plan (the “Compliance Plan”) to Nasdaq.

On August 9, 2022, we received written notice (the “Notice”) from Nasdaq, stating that the Nasdaq has determined that we have not complied with the Nasdaq Listing Rule 5550(a)(2), which requires us to maintain a minimum bid price of our common stock be at least $1.00 per share (the “Minimum-Bid Price Requirement”), or the Stockholders’ Equity Requirement. The Notice indicated that our common stock would be suspended from trading on Nasdaq unless we request a hearing before an independent hearings panel (the “Panel”) by August 16, 2022.

Additionally, as previously disclosed on February 8, 2022, we received a letter from the Regulations Department of The Nasdaq Stock Market LLC indicating that the closing bid price of our common stock has been below $1.00 per share for 30 consecutive business days, and that, therefore, we are not in compliance with the Minimum-Bid Price Requirement for continued listing on The Nasdaq Capital Market.

We timely requested a hearing before the Panel, which took place on September 22, 2022. On September 29, 2022, the Panel issued a decision granting our request for continued listing on Nasdaq, through October 31, 2022, to demonstrate compliance with the Stockholders’ Equity Requirement, and through October 6, 2022 to satisfy the Minimum Bid Price Requirement.

On October 18, 2022, we were formally notified by Nasdaq that we have evidenced compliance with the Minimum-Bid Price Requirement and the Stockholders’ Equity Requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rules 5550(a)(2) and 5550(b)(1), respectively. Accordingly, the listing matter has been closed.

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Reverse Stock Split

On July 25, 2022, the holders of a majority of the voting power of our capital stock executed a written consent approving a grant of discretionary authority to our board of directors (the “Board”) to, without further stockholder approval, (i) effect a reverse stock split of our issued and outstanding common stock within a range of between 10-for-1 and 20-for-1 (with the Board being authorized to determinate the exact ratio) (the “Reverse Stock Split”) and (ii) reduce the number of our authorized shares of common stock from 50,000,000 to 20,000,000 (the “Authorized Share Reduction”) by filing an amendment (the “Amendment”) to our 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 9,423,429 shares of our common stock and 250,000 shares of our Class A Preferred Stock. Each share of common stock entitles the holder thereof to one vote on all matters submitted to stockholders and each share of Class A Preferred Stock has the voting power of 1.1 times (A) the number of outstanding shares of common stock plus (B) the whole shares our 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, or 99 votes per share as of July 25, 2022. Accordingly, the holders of approximately 73% of the voting power of our capital stock as of July 25, 2022 signed the written consent approving the Reverse Stock Split, the Authorized Share Reduction and the Amendment. The Board also approved the Reverse Stock Split, the Authorized Share Reduction and the Amendment.

The Reverse Stock Split was effective on September 23, 2022 upon filing of the Amendment with the Secretary of State of Delaware, which date was at least twenty (20) days following the mailing of the information statement. Under the Amendment, the number of authorized shares of common stock immediately after the Reverse Stock Split (“New Common Stock”) was simultaneously reduced from 50,000,000 to 20,000,000 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.

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 into one 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 of one share of New Common Stock as a result of the Reverse Stock Split instead received an amount in 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.

October 2022 Public Offering

On October 6, 2022, we entered into an Underwriting Agreement (the “Underwriting Agreement”) with Aegis Capital Corp., as underwriter (the “Underwriter”), related to our underwritten public offering (the “October 2022 Offering”) of 2,652,065 units (“Units”) and 984,300 pre-funded units (“Pre-funded Units”). Each Unit consisted of one share (a “Share”) of our common stock, and one warrant to purchase one share of our common stock (each, a “Warrant” and, collectively, the “Warrants”), and each Pre-funded Unit consisted of one pre-funded warrant to purchase one share of common stock (each, a “Pre-funded Warrant” and collectively, the “Pre-funded Warrants”) and one Warrant. The Units were sold at a price of $3.30 per Unit, and the Pre-Funded Units were sold at a price of $3.2999 ($3.30 less $0.0001, the exercise price of the Pre-funded Warrants).

The Warrants are immediately exercisable upon issuance and are exercisable for a period of five years after the issuance date. The Shares, the Pre-funded Warrants and the Warrants were immediately separable upon issuance and were issued separately. The Underwriter was granted a 45-day option to purchase up to an aggregate of (i) 545,454 additional Shares and/or Pre-funded Units, representing 15% of the Shares and Pre-funded Warrants sold in the Offering, and/or (ii) Warrants to purchase 545,454 additional Shares, representing 15% of the Warrants sold in the Offering, which it initially exercised, in part, electing to purchase 545,454 Warrants at a purchase price of $0.01 per Warrant. We 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 Pre-funded Warrants, pursuant to the terms thereof, elected to exercise 949,900 Pre-funded Warrants. Accordingly, at the closing, we issued 949,900 fewer Pre-funded Warrants and, in lieu thereof, the corresponding 949,900 shares of Common Stock.

We received net proceeds from the Offering of $10.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable us.

InvaGen Share Repurchase

In connection with the closing of the Offering, on October 11, 2022, we consummated the transactions contemplated by the Share Repurchase Agreement with InvaGen, pursuant to which we repurchased 100% of the shares in the Company held by InvaGen (the

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“InvaGen Shares”) for a purchase price of $3 million. In addition, under the Share Repurchase Agreement we agreed to pay InvaGen an additional amount as a contingent fee, payable in the form of seven and a half percent (7.5%) of the proceeds of future financings, up to $4 million. In connection with the closing of the Share Repurchase Agreement, which occurred on October 31, 2022, all of the rights retained by InvaGen pursuant to the Stockholders Agreement entered into by and among us, InvaGen and Fortress on November 12, 2018, were terminated.

January 2023 Registered Offering and Private Placement

On January 27, 2023, we entered into a Securities Purchase Agreement (the “Registered Purchase Agreement”) with a single institutional accredited investor, pursuant to which we agreed to issue and sell (i) 448,000 shares (the “Shares”) of our common stock at a price per Share of $1.55, and (ii) pre-funded warrants (the “Pre-funded Warrants”) to purchase 1,492,299 shares of common stock, at a price per Pre-funded Warrant equal to the price per Share, less $0.001 (the “Registered Offering”). The Pre-funded Warrants have an exercise price of $0.001 per share, became exercisable upon issuance and remain exercisable until exercised in full. We received approximately $3.0 million in gross proceeds from the Registered Offering, before deducting placement agency fees and estimated offering expenses.

On January 27, 2023, we also entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with the same institutional accredited investor for a private placement offering (“Private Placement”) of warrants (the “PIPE Warrants”) to purchase 1,940,299 shares of common stock. Pursuant to the PIPE Purchase Agreement, we agreed to issue and sell the PIPE Warrants at an offering price of $0.125 per PIPE Warrant to purchase one share of common stock. The PIPE Warrants have an exercise price of $1.55 per share (subject to adjustment as set forth in the PIPE Warrants), are exercisable six months after issuance and will expire three years from the date on which the PIPE Warrants become exercisable. The PIPE Warrants contain standard anti-dilution adjustments to the exercise price including for share splits, share dividend, rights offerings and pro rata distributions. The Private Placement closed on January 31, 2023, concurrently with the Registered Offering. The gross proceeds to us from the Private Placement, before deducting placement agent fees and other estimated offering expenses payable by us, were approximately $0.24 million.

In connection with the PIPE Purchase Agreement, we entered into a registration rights agreement (the “Registration Rights Agreement”) with the investor. Pursuant to the Registration Rights Agreement, we will be required to file, on or prior to April 10, 2023 (the “Filing Date”), a resale registration statement (the “Resale Registration Statement”) with the SEC to register the resale of the shares issuable upon exercise of the PIPE Warrants. Pursuant to the Registration Rights Agreement, the Resale Registration Statement must be declared effective by the SEC within 15 days after the Filing Date or 45 days following the Filing Date if the Resale Registration Statement is reviewed by the SEC. We will be obligated to pay certain liquidated damages to the investor if we fail to file the resale registration statement when required, if the Resale Registration Statement is not declared effective by the SEC when required under the Registration Rights Agreement, or if we fail to maintain the effectiveness of the Resale Registration Statement.

Critical Accounting Policies and Use of Estimates

Our discussion and analysis of our financial condition and results of operations are based on our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our audited consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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 to third parties that perform research and development services on our behalf will be expensed as services are rendered or when the milestone is achieved. Costs incurred in obtaining technology licenses are charged to research and development expense if the technology licensed has not reached technological feasibility and has no alternative future use.

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Research and development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses, stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology, payments made to third 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 has not reached commercial feasibility and has no alternative future use. The licenses purchased by us require substantial completion of research and development, regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly, the total purchase price for the licenses acquired are reflected as research and development.

Stock-Based Compensation

We expense stock-based compensation to employees, consultants and board members over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

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.

Warrant Liabilities

We have issued freestanding warrants to purchase shares of our common stock in connection with financing activities. Our outstanding common stock warrants issued in connection with the equity financing completed in 2022 are classified as liabilities in the consolidated balance sheet as they contain terms for redemption of the underlying security that are outside our control. We use the Monte Carlo option pricing model to value warrants, which requires management to estimate inputs including expected volatility and expected term, and is most significantly impacted by our common stock price. These inputs are inherently subjective and require significant analysis and judgment to develop. The fair value of all 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). We will continue to re-measure the fair value of the warrant liabilities until exercise or expiration of the related warrant.

Income Taxes

No income tax expense or benefit was recognized in the accompanying audited consolidated financial statements. Our deferred tax assets are comprised primarily of net operating loss carryforwards. We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations. As a result, we have not recorded any income tax benefit since our inception.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

For The Years Ended

December 31,

Operating expenses:

Research and development $ 2,698 $ 1,254

General and administrative 5,345 2,484

Interest income (20) (7)

Financing costs - warrant liabilities 1,160 —

Change in fair value of warrant liabilities (5,580) —

Net loss attributable to non-controlling interests 51 —

Net Loss attributable to common stockholders $ (3,552) $ (3,731)

Research and Development Expenses

For the years ended December 31, 2022 and 2021, research and development expenses were $2.7 million and $1.3 million, respectively. The $1.4 million increase primarily reflects an increase of $0.8 million due advisory committee preparation and costs, $0.2 million in bonus costs, $0.3 million in acquired license costs and $0.1 million in non-cash stock compensation costs.

We expect our research and development activities to continue as we attempt to gain regulatory approval for IV Tramadol and pursue continued development of AJ201 and BAER-101, reflecting costs associated with the following:

● employee-related expenses;

● the cost of acquiring and manufacturing clinical trial materials; and

● costs associated with non-clinical activities, and regulatory approvals.

General and Administrative Expenses

General and administrative expenses consist principally of professional fees for legal and consulting services, market research, personnel-related costs, public reporting company related costs and other general operating expenses not otherwise included in research and development expenses. We expect our general and administrative costs to continue as we seek potential regulatory approval and potential commercialization of our product candidates.

For the years ended December 31, 2022 and 2021, general and administrative expenses were $5.3 million and $2.5 million, respectively. The $2.8 million increase primarily reflects increases of $2.6 million in consulting and professional fees and $0.3 million in non-cash stock compensation costs partially offset by a decrease of $0.1 million in personnel costs.

Interest Income

Interest income was $20,000 and $7,000 for the years ended December 31, 2022 and 2021, respectively. The increase in interest income was due to increased interest rates and cash and cash equivalents.

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Financing costs – warrant liabilities

Financing costs of our warrant liabilities reflect an allocation of total financing costs associated with the public offering in October 2022, on the basis of the fair value of the warrant liabilities as compared to the total proceeds received by the Company.

Change in fair value of warrant liability

Change in the estimated fair value of warrant liabilities is comprised of the fair value remeasurement of the liabilities associated with the October 2022 Public Offering. We account 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 ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, 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 do not 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 balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. The fair value of the warrants was estimated using a Monte Carlo simulation approach (see Note 2 to our audited consolidated financial statements included herein).

Liquidity and Capital Resources

Cash Flows for the Years Ended December 31, 2022 and 2021

For The Years Ended

December 31,

Total cash and cash equivalents (used in)/provided by:

Operating activities $ (7,596) $ (3,750)

Investing activities — —

Net increase/(decrease) in cash and cash equivalents $ 2,945 $ 631

Operating Activities

Net cash used in operating activities was approximately $7.6 million for the year ended December 31, 2022, primarily comprised of our $3.6 million net loss and $5.6 million reduction in fair value of the warrant liability, partially offset by $0.7 million in share-based compensation, $0.5 million of common shares issuable and $0.4 million change in operating assets and liabilities.

Net cash used in operating activities was approximately $3.8 million for the year ended December 31, 2021, primarily comprised of our $3.7 million net loss and decrease in operating assets and liabilities of $0.5 million, partially offset by $0.4 million in share-based compensation.

Investing Activities

None.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $10.5 million, primarily related to $11.5 million in proceeds of our issuance of shares pursuant to our underwritten public offering in October 2022 and $0.1 million proceeds from exercise of warrants, partially offset by the $1.1 million repurchase of common shares of the Company from InvaGen.

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Net cash provided by financing activities for the year ended December 31, 2021 was $4.4 million which was from the proceeds of our issuance of shares pursuant to our two underwritten public offerings in November and December 2021.

Recently Adopted Accounting Standards

See Note 2 to our audited consolidated financial statements included herein for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on results of operations and financial condition.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 8. Financial Statements and Supplementary Data.

The information required by this Item is set forth in our audited consolidated financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. As of December 31, 2022, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, in Internal Control-Integrated Framework (2013). Our management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on these criteria.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Item 9B. Other Information

None.

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