The first thoracic ventral rami divide into unequal parts.  The smaller parts pass into the intercostal spaces between the pleura and internal intercostal membrane (fascia) to become the first intercostal nerves.  They then pass below the intercostal vessels in the neurovascular plane between the first internal and innermost intercostal muscles below the intercostal vessels.  Before reaching the costal angle they give rise to lateral and collateral branches.

The first lateral cutaneous branch pierces the intercostal muscles obliquely in front of serratus anterior and passes to the skin over the axilla and medial aspect of the arm, where it may connect with a branch of the medial cutaneous nerve of the arm.

The first anterior cutaneous branch is the terminal part of the collateral nerve.  The collateral nerve follows the inferior border of the intercostal space to pierce the internal intercostal muscle, external intercostal membrane and pectoralis major muscle near the sternum where it becomes the first anterior cutaneous branch of the thorax and terminates in the overlying skin. 

Supply
The first lateral cutaneous branch supplies skin over the first intercostal space and adjacent parts of the first intercostal space and skin of the axilla and medial surface of the arm.  The anterior cutaneous branches supply skin over the anterior thoracic wall.