Allarity Therapeutics, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 183 Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, because (i) of the material weaknesses identified in our internal controls over financial reporting; and (ii) we were required to restate our financial statements for the year ended December 31, 2020, and quarterly period ended September 30, 2021, which delayed the filing of or required an amendment to our SEC reports, our disclosure controls, and procedures, as defined above, were not effective. As a newly reporting company under the Exchange Act, we are not required to evaluate the effectiveness of our internal controls over financial reporting until the end of the fiscal year after we file our first annual report on Form 10-K, which will occur on December 31, 2022. However, in connection with the audit of our financial statements for the years ended December 31, 2020 and 2021, we identified material weaknesses in our internal controls over financial reporting because we did not have a formal process for period end financial closing and reporting, we historically had insufficient resources to conduct an effective monitoring and oversight function independent from our operations and we lack accounting resources and personnel to properly account for accounting transactions such as the issuance of warrants with a derivative liability component. In particular, the material weaknesses identified were: ● a lack of accounting resources required to fulfill US GAAP and SEC reporting requirements; ● a lack of comprehensive US GAAP accounting policies and financial reporting procedures and personnel; ● a lack of adequate procedures and controls to appropriately account for accounting transactions including liability and the valuation allowance on the deferred tax asset relating to the net operating losses; and ● a lack of segregation of duties given the size of our finance and accounting team. We have implemented and are continuing to implement various measures to address the material weaknesses identified; these measures include: ● the hiring of a chief financial officer that is a CPA in the U.S.; ● The hiring of a Director of Financial Reporting, a CPA, CA, CPA (Illinois) who is experienced with public company reporting and is conversant in US GAAP and SEC accounting issues. With this hire we are addressing our ongoing development of our comprehensive US GAAP accounting policies, financial reporting procedures and internal controls over financial reporting; ● retaining consulting services to assist with the accounting treatment of complex financial instruments and tax; and ● engaged independent US GAAP consulting firm. A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process, or report external financial data reliably in accordance with US GAAP such that there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected by our employees. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected by our employees. In response, we have begun the process of evaluating our internal control over financial reporting and to address the material weaknesses identified. We intend to continue to take steps to remediate the material weaknesses described above and further evolve our accounting processes, controls, and reviews. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify or are brought to our attention. 184 We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weaknesses in our internal controls over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal controls over financial reporting, which may necessitate further action. Management’s Report on Internal Controls over Financial Reporting This annual report does not include a report of management’s assessment regarding internal controls over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. Change in Internal Controls over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting during the quarter ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting other than as described above in the section titled “Evaluation of Disclosure Controls and Procedures.” ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS Not Applicable. 185 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Directors, Executive Officers and Significant Employees The following table and text set forth the names and ages of our current directors, executive officers and significant employees as of December 31, 2021. Our Board of Directors is comprised of four (4) members and is divided into three (3) classes, Class I, Class II and Class III, with members of each class serving staggered three-year terms. Our directors receive compensation in the form of cash and equity grant for their services on the Board. Each of our current directors became our director upon the closing of the Recapitalization Shares Exchange on December 20, 2021. Name Age Title Steve R. Carchedi 60 Chief Executive Officer and Director Jens E. Knudsen 54 Chief Financial Officer James G. Cullem 53 Senior Vice President, Corporate Development Steen Knudsen 60 Chief Scientific Officer Marie Foegh 79 Chief Medical Officer Thomas H. Jensen 43 Senior Vice President, Information Technology Duncan Moore (1) 62 Chairman Søren G. Jensen (1) 58 Director Gail Maderis (1) 64 Director (1) Independent Director 186 Business Experience Steve R. Carchedi has been our Chief Executive Officer and a director since September 2019. Mr. Carchedi brings more than 30 years of commercial industry experience focused in oncology from several leading multinational pharmaceutical biotech companies. Mr. Carchedi was previously President & Chief Executive Officer and member of the board of directors of Apexian Pharmaceuticals, an early stage oncology discovery and development company focused in novel targets to treat cancer from 2016 to 2019. He also served as Chief Executive Officer and member of the board of directors of Raphael Pharmaceuticals (formerly Cornerstone Pharmaceuticals), an oncology company focused in cancer metabolism, from 2014 to 2016. From 2012 to 2013, Mr. Carchedi also served as the Senior Vice President and President, Commercial Operations (North America) for Mallinckrodt Pharmaceuticals and led the company’s listing on NYSE. In addition, Mr. Carchedi was the Chief Marketing Officer at General Electric from 2010 to 2012, the Franchise Vice President for Sales and Marketing at Johnson & Johnson from 2005 to 2008, a Director of the Oncology Product Group-Global Oncology Franchise Leader at Eli Lilly & Company from 1998 to 2003, and a Director of Marketing Strategy, Business Development, and Product Planning at Bristol Myers Squibb from 1989 to 1998. Mr. Carchedi also currently serves on the Board of Directors of Drummond Scientific Company, a privately held global manufacturer and distributor of precision laboratory equipment that serves the pharmaceutical and laboratory industries and previously served on the board of directors of Sunesis Pharmaceuticals 2013 to 2021 and Bionumerik Pharmaceuticals from 2012 to 2017. In addition to his executive experience, Mr. Carchedi was Co-Chair of the BioNJ Personalized Medicine & Diagnostics Committee Council (CMOC) from 2010 to 2012, the Ontario Institute of Cancer Research Commercial Committee (OICR) from 2007 to 2008, and the Pharmaceutical Industry Board of the American Pediatric Family Foundation from 2006 to 2008. Mr. Carchedi received a B.S. in Marketing from West Chester University and an MBA in Marketing from Drexel University. Mr. Carchedi is well qualified to serve as our director because of his experience serving on the board of directors and executive experience as CEO with public and private companies in the biotechnology sector and over 30 years of commercial industry experience. Jens E. Knudsen has been our Chief Financial Officer since November 2020. Mr. Knudsen has over 30 years of experience leading financial organizations from previous positions as a Vice President of Finance and Controller in numerous public and private companies, including in the life sciences sector. Before joining us in November 2020, Mr. Knudsen served as Vice President of Finance & Operations at Metabo Corporation from June 2012 to September 2020. Prior to that, he served as Controller at multiple companies, including Eurand Pharmaceuticals, Inc. from April 2008 to June 2012, Beijing Med-Pharm Corporation from June 2005 to April 2008, and Eximias Pharmaceutical Corporation from May 2004 to June 2005. Mr. Knudsen is a member of the American Institute of Certified Public Accountants and the Pennsylvania Institute of Certified Public Accountants. He received his bachelor’s degree in Economic and Business from the Copenhagen Business School, is a Certified Public Accountant (CPA) and holds a Master degree in Business Administration from Philadelphia University. James G. Cullem has been our Senior Vice President, Corporate Development since October 2019. Mr. Cullem is an experienced biotechnology executive and previously served as the Vice President, Corporate Development of our predecessor from August 2014 to September 2019. From 2017 to 2020, Mr. Cullem was the co-founder and a board member of 2X-Oncology, Inc. (later Oncology Venture US, Inc.), our subsidiary. From July 2014 to September 2018, he was the Vice President of Corporate Development of the Medical Prognosis Institute, an international precision medicine company with a mission to help find personalized cures for cancer. He brings 20+ years of diverse experience in life sciences organizational management, business development & licensing, intellectual property & technology transfer/commercialization, partnership creation/management, and strategic planning as a member of executive teams. During his tenure, Mr. Cullem has been responsible for the identification and acquisition of most of our lead clinical oncology assets, including big pharma therapeutics dovitinib (from Novartis) and stenoparib (from Eisai). He leads the company’s business development discussions as well as clinical program out-licensing and partnership negotiations, both in the U.S. and worldwide. Mr. Cullem has experience in designing and negotiating a broad span of life science deals, has founded and led several early-stage biotech companies, and is a catalyst for businesses taking the next step in the fields of precision medicine and predictive/companion diagnostics, novel drug targets, proteomics and genomics, and clinical-stage cancer therapeutic development. He holds a B.S. degree in Biochemistry from The University of California at Davis, a Juris Doctorate (JD) degree from The University of New Hampshire Franklin Pierce School of Law, specializing in patent & I.P. law, and is a registered patent attorney before the United States Patent & Trademark Office. 187 Steen Knudsen has been our Chief Scientific Officer since 2006. Dr. Knudsen is a co-founder of our predecessor Allarity Therapeutics A/S and the inventor of DRP ® , the Drug Response Prediction Platform, which is our core technology and companion diagnostics platform. Dr. Knudsen is also a former Professor of Systems Biology with extensive expertise in mathematics, bioinformatics, biotechnology, and systems biology. He co-founded our predecessor in 2004 and served as its CEO from 2004 to 2006. Dr. Knudsen also previously served as a member on our predecessor’s Board of Directors from 2016 to 2020. In addition, Dr. Knudsen also currently serves as the Chief Executive Officer of MPI, Inc., our operating subsidiary in the U.S. Dr. Knudsen holds an M.Sc. degree in Engineering from the Technical University of Denmark and a Ph.D. degree in Microbiology from the University of Copenhagen. He received Postdoctoral training in computational biology from Harvard Medical School. Marie Foegh has been our Chief Medical Officer since January 2018. Dr. Foegh previously served as Chief Medical Officer of our subsidiary, 2X-Oncology, Inc. (later Oncology Venture US, Inc.) from 2016 to 2018. Dr. Foegh brings thirty years of experience in the pharmaceutical and biotechnology industries to our senior management team and has a strong track record leading successful clinical development of therapeutics, including regulatory and medical affairs. She is also Adjunct Clinical Professor at Georgetown University, Department of Medicine and Adjunct Professor at New York Medical College, Department of Pharmacology. Dr. Foegh was the Chief Medical Officer and cofounder of Ell Imaging, LLC, an ultrasound device company, from 2014 to 2016. She serves as the Chair of the Board of Directors at the device company, Injecto A/S, since 2014. Dr. Foegh leads clinical development of our current precision medicine oncology pipeline, including our lead assets stenoparib, dovitinib, and Ixempra ® . Dr. Foegh previously led the successful development and regulatory approval of more than 10 novel drug products in the U.S. and U.K., within oncology, endocrinology and cardiology. Dr. Foegh has fluency in regulatory interactions with the FDA and EMEA, including INDs, NDAs, IDEs (for predictive biomarkers and/or companion diagnostics), and product issues. She also manages interactions with the oncology key opinion leaders including our Scientific Advisory Board. Dr. Foegh holds both a Medical Doctorate (M.D.) degree and a Doctorate of Science (Dr.Sc.) degree from Copenhagen University, Denmark, and is a member of the American College of Physicians (ACP), American Medical Association (AMA), the American Society of Clinical Oncology, and the American College of Obstetricians and Gynecologists (ACOG). Thomas H. Jensen has been our Senior Vice President, Information Technology since June 2020. Since January 2006, Mr. Jensen has served as the Chief Technology Officer of the Medical Prognosis Institute. Mr. Jensen previously served as the Chief Technology Officer of our predecessor from 2004 to June 2020. Mr. Jensen co-founded Allarity Therapeutics A/S in 2004. Mr. Jensen also established and currently leads our laboratories in Denmark. Alongside nurturing our global laboratories, Mr. Jensen is instrumental in building our investor relations operations, securing operational financing, and fostering the business growth of Allarity Therapeutics. Amongst Mr. Jensen’s accolades are his inventions of molecular biological guidelines combined with techniques for high quality reproducible RNA extraction and downstream processing. This allows for high resolution analysis of cancer patients’ biopsies. Mr. Jensen’s inventions are an important foundation of the DRP ® -Drug Response Prediction platform. Mr. Jensen holds a Bachelor of Science degree in Biology from the Technical University of Denmark and conducted further studies in Biology at the University of Copenhagen. Duncan Moore has been our Chairman of the Board since 2018. Dr. Moore has previously served as chairman of Oncology Venture Sweden AB (publ) since 2015 until its merger with our predecessor in 2018. Dr. Moore is currently a partner in the company East West Capital Partners and has previously worked as Global Head of Healthcare Research at Morgan Stanley where he was employed from 1990 to 2006, latterly as a Managing Director. Dr. Moore is a board member of Forward Pharma Nasdaq; FWP, as well as privately held Lamellar Biomedical and Cycle Pharma. Dr. Moore has over twenty years’ experience in capital markets analysis within health care. Dr. Moore holds a PhD in Biochemistry from the University of Cambridge where he was also a post-doctoral research fellow. He also has a degree in Biochemistry and Microbiology from the University of Leeds. Dr. Moore is well qualified to serve on our board of directors based on the above qualifications and his extensive experience in capital markets within the healthcare industry. 188 Søren G. Jensen has been one of our directors since September 2020. Mr. Jensen is a current Member of the European Parliament for the Danish Liberal Party (Venstre) and was previously a member of the Danish Parliament for the Danish Liberal Party (Venstre) from 2015 to 2019, of which he was the Group Chairman from 2015 to 2018 and an appointed State Auditor of the Danish Parliament from 2015 to 2018. Mr. Jensen currently serves as the Chairman of TecLeaf ApS, CSR Invest ApS, and is also currently the chief executive officer of SGJ Holstebro ApS and CSR Invest ApS. In addition, Mr. Jensen also serves on the board of various non-profit organizations and is currently a board member for Fulton Foundation and Samfonden, and the Chairman for Memorial Park for the Battle of Jutland 1916. Mr. Jensen holds an MSc degree in Economics from the University of Aarhus. Mr. Jensen is well qualified to serve on our board of directors due to his experience serving on the board of directors of private and non-profit companies. Gail Maderis has been one of our directors since October 2020. Since 2015, Ms. Maderis has also served as the President & CEO of Antiva Biosciences, Inc., a venture-backed biopharmaceutical company pioneering topical therapies to treat the pre-cancerous lesions caused by HPV. Previously, Ms. Maderis led BayBio, Northern California’s life science industry organization, as its President and CEO from 2019 to 2015. From 2003-2009, she served as President and CEO of FivePrime Therapeutics, a protein discovery company focused on immuno-oncology. Prior to her tenure at FivePrime Therapeutics, Ms. Maderis held senior executive positions at Genzyme Corporation, including founder and president of Genzyme Molecular Oncology. Ms. Maderis also practiced management and strategy consulting with Bain & Co. She currently serves on the corporate boards of DURECT Corporation (DRRX), Valitor, Inc. and Antiva Biosciences, as well as on the non-profit boards of BIO (Emerging Company and Health Sections), CLS, The Termeer Foundation, and the University of California Berkeley Foundation Board of Trustees. Ms. Maderis received a BS in business from UC Berkeley, and an MBA from Harvard Business School. Ms. Maderis is well qualified to serve on our board of directors due to her operational, industry and leadership experience in the biopharmaceutical industry as CEO of FivePrime Therapeutics, President of Genzyme Molecular Oncology and her current position at Antiva, and her insight into business and policy trends impacting the biopharma industry. Involvement in Certain Legal Proceedings To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. Family Relationships and Arrangements There are no family relationships among any of our directors or named executive officers. There are no arrangements or understandings with any other person under which our directors and officers was elected or appointed as a director or named executive officer. Board Composition, Committees, and Independence Our business and affairs are managed under the direction of our board of directors. Mr. Moore serves as Chair of our board of directors. The primary responsibilities of our board of directors is to provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and additionally as required under the Nasdaq rules. 189 In accordance with the terms of our Bylaws, subject to the rights of holders of any series of Preferred Stock, the board of directors may establish the authorized number of directors from time to time by resolution. The board of directors consists of four (4) members and is divided into three (3) classes, Class I, Class II and Class III, with members of each class serving staggered three-year terms. Our board of directors is divided into the following classes: ● Class I, consists of Mr. Jensen, whose term will expire at our first annual meeting of stockholders to be held after December 2021; ● Class II, consists of Ms. Maderis, whose term will expire at our second annual meeting of stockholders to be held after December 2021; and ● Class III, consists of Messrs. Moore and Carchedi, whose terms will expire at our third annual meeting of stockholders to be held after December 2021. Director Independence Nasdaq listing standards require that a majority of our board of directors be independent. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees be independent within the meaning of the applicable Nasdaq rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act. The board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning her or his background, employment and affiliations, our board of directors has determined that none of the directors, other than Mr. Carchedi, has any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of the directors is “independent” as that term is defined under the Nasdaq listing standards. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with us, and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our securities by each non-employee director and the transactions described in the section titled “ Certain Relationships and Related Transactions and Director Independence.” Role of our Board of Directors in Risk Oversight One of the key functions of the board of directors is informed oversight of our risk management process. The board of directors does not anticipate having a standing risk management committee, but rather anticipates administering this oversight function directly through our board of directors as a whole, as well as through various standing committees of our board of directors that address risks inherent in their respective areas of oversight. In particular, our board of directors is responsible for monitoring and assessing strategic risk exposure and our audit committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has to take to monitor and control such exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The audit committee also monitors compliance with legal and regulatory requirements. Our compensation committee also assesses and monitors whether our compensation plans, policies and programs comply with applicable legal and regulatory requirements. Board Committees Our board of directors has established an audit committee, compensation committee, and nominating and corporate governance committee. The board of directors has also adopted new charters for each of these committees, which comply with the applicable requirements of current SEC and Nasdaq rules. Copies of the charters for each committee are available at www.allarity.com . Audit Committee The audit committee consists of Ms. Maderis, Mr. Jensen and Mr. Moore, each of whom the board of directors has determined satisfies the independence requirements under Nasdaq listing standards and Rule 10A-3(b)(1) of the Exchange Act. The chair of the audit committee is Mr. Moore, who the board of directors has determined is an “audit committee financial expert” within the meaning of SEC regulations. Each member of the audit committee can read and understand fundamental financial statements in accordance with applicable requirements. In arriving at these determinations, the board of directors has examined each audit committee member’s scope of experience and the nature of their employment in the corporate finance sector. 190 The primary purpose of the audit committee is to provide assistance to our board of directors in fulfilling the board of directors’ responsibility to our stockholders relating to our accounting and financial reporting practices, system of internal controls, the audit process, the quality and integrity of our financial reporting, and our process for monitoring compliance with laws and regulations and our code of conduct. Specific responsibilities of the audit committee are to: ● Appoint, compensate, and oversee the work of any independent auditor; ● Resolve any disagreements between management and the independent auditor regarding financial reporting; ● Pre-approve all audit and permitted non-audit services by the independent auditor; ● Retain independent counsel, independent registered accounting firm, or other advisors or consultants to advise and assist the Audit Committee in carrying out its duties, without needing to seek approval for the retention of such advisors or consultants from the Board, and determine the appropriate compensation for any such advisors or consultants retained by the Audit Committee; ● Seek any information it requires from our employees or any direct or indirect subsidiary of ours (each, a “Subsidiary”), all of whom are directed to cooperate with the Audit Committee’s requests, or external parties; ● Meet with any of our officers or employees (or officers or employees of any Subsidiary), our independent auditor or outside counsel, as necessary, or request that any such persons meet with any members of, or advisors or consultants to, the Audit Committee; and ● Oversee that management has established and maintained processes to assure our compliance with applicable laws, regulations and corporate policy. Compensation Committee The compensation committee consists of Ms. Maderis, Mr. Jensen and Mr. Moore. The chair of the compensation committee is Ms. Maderis. The board of directors has determined that each member of the compensation committee is independent under the Nasdaq listing standards and a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The primary purpose of the compensation committee is to discharge the responsibilities of the board of directors relating to compensation of our directors and executive officers, to assist the board of directors in establishing appropriate incentive compensation and equity-based plans and to administer such plans, and to oversee the annual process of evaluation of the performance of our management. Specific responsibilities of the compensation committee are to: ● Establish a compensation policy for executive officers designed to (i) enhance our profitability and increase stockholder value, (ii) reward executive officers for their contribution to our growth and profitability, (iii) recognize individual initiative, leadership, achievement, and other contributions and (iv) provide competitive compensation that will attract and retain qualified executives. ● Subject to variation where appropriate, the compensation policy for executive officers shall include (i) base salary, which shall be set on an annual or other periodic basis, (ii) annual or other time or project based incentive compensation, which shall be awarded for the achievement of predetermined financial, project, research or other designated objectives applicable to us as a whole and of the executive officers individually and (iii) long-term incentive compensation in the forms of equity participation and other awards with the goal of aligning, where appropriate, the long-term interests of executive officers with those of our stockholders and otherwise encouraging the achievement of superior results over an extended time period. 191 ● Review competitive practices and trends to determine the adequacy of the executive compensation program. ● Annually review and recommend to the board of directors corporate goals and objectives relevant to CEO compensation, evaluate the CEO’s performance in light of those goals and objectives, and recommend to the board of directors the CEO’s compensation levels based on this evaluation; the CEO may not be present during any deliberations or voting with respect to the CEO’s compensation. ● Annually review and approve compensation of our executive officers other than the CEO. ● Annually review and approve compensation of our directors, including with respect to any equity-based plan. ● As deemed necessary or appropriate, approve employment contracts, severance arrangements, change in control provisions and other agreements. ● Approve and administer cash incentives and deferred compensation plans for executive officers (including any modification to such plans) and oversight of performance objectives and funding for executive incentive plans. ● Approve and oversee reimbursement policies for directors and executive officers. ● Periodically review and make recommendations to the board of directors with respect to equity-based plans that are subject to approval by the board of directors. The compensation committee shall oversee our compliance with the requirement under Nasdaq rules that, with limited exceptions, stockholders approve equity compensation plans. Subject to such stockholder approval, or as otherwise required by the Exchange Act, or other applicable law, the compensation committee shall have the power to manage all equity-based plans. ● If we are required by applicable Securities and Exchange Commission (“SEC”) rules to include a Compensation Discussion and Analysis (“CD&A”) in its SEC filings in the future, review the CD&A prepared by management, discuss the CD&A with management and, based on such review and discussions, recommend to the board of directors that the CD&A be included in our Annual Report on Form 10-K, proxy statement, or any other applicable filing as required by the SEC. ● Review all compensation policies and practices for all employees to determine whether such policies and practices create risks that are reasonably likely to have a material adverse effect on our business or financial condition. ● Recommend to the board of directors that our stockholders approve, on an advisory basis, the compensation of our named executive officers, as disclosed in our proxy statement, if such proposal will be contained in the proxy statement. ● Recommend to the board of directors the frequency of holding a vote on the compensation of our named executive officers, if such proposal will be contained in our proxy statement. ● Periodically review executive supplementary benefits and, as appropriate, the organization’s retirement, benefit, and special compensation programs involving significant cost. ● Make regular reports to the board of directors. ● Annually review and reassess the adequacy of the compensation committee Charter and recommend any proposed changes to the board of directors for approval. ● Annually evaluate its own performance. ● Oversee the annual process of performance evaluations of our management. ● Fulfill such other duties and responsibilities as may be assigned to the compensation committee, from time to time, by the board of directors and/or the Chairman of the board of directors. 192 Nominating and Corporate Governance Committee The nominating and corporate governance committee consists of Ms. Maderis, Mr. Jensen and Mr. Moore. The chair of the nominating and corporate governance committee is Mr. Jensen. The board of directors has determined that each member of the nominating and corporate governance committee is independent under the Nasdaq listing standards. The primary purpose of the nominating and corporate governance committee is (1) to assist the board of directors by identifying qualified candidates for director, and to recommend to the board of directors the director nominees for the next annual meeting of shareholders; (2) to lead the board of directors in its annual review of the board of directors’ performance; (3) to recommend to the board of directors director nominees for each board of directors committee; and (4) develop and recommend to the board of directors our corporate governance guidelines. Specific responsibilities of the nominating and corporate governance committee are to: ● Evaluate the current composition, organization, and governance of the board of directors and its committees and make recommendations to the board of directors for approval. ● Annually review for each director and nominee, the experience, qualifications, attributes, or skills that contribute to the board of directors’ conclusion that the person should serve or continue to serve as one of our directors, as well as how the directors’ skills and background enable them to function well together as a board of directors. ● Determine desired member skills and attributes and conduct searches for prospective directors whose skills and attributes reflect those desired. Evaluate and propose nominees for election to the board of directors. At a minimum, nominees for service on the board of directors must meet the threshold requirements set forth in the Nominating and Corporate Governance Committee Policy Regarding Qualifications of Directors . Each nominee will be considered both on his or her individual merits and in relation to existing or other potential members of the board of directors, with a view to establishing a well-rounded, diverse, knowledgeable, and experienced board of directors. ● Administer the annual board of directors’ performance evaluation process, including conducting surveys of director observations, suggestions, and preferences. ● Evaluate and make recommendations to the board of directors concerning the appointment of directors to board of directors’ committees, the selection of board of directors committee chairs, and proposal of the slate of directors for election to the board of directors. ● Consider bona fide candidates recommended by shareholders for nomination for election to the board of directors in accordance with Section 2.12 of our Bylaws. ● As necessary in the nominating and corporate governance committee’s judgment from time to time, retain and compensate third-party search firms to assist in identifying or evaluating potential nominees to the board of directors. ● Evaluate and recommend termination of membership of individual directors in accordance with the board of directors’ governance principles, for cause or for other appropriate reasons. ● Oversee the process of succession planning for the Chief Executive Officer and as warranted, other senior officers. ● Develop, adopt and oversee the implementation of a Code of Business Conduct and Ethics for all directors, executive officers and employees. ● Review and maintain oversight of matters relating to the independence of board of directors and committee members, keeping in mind the independence standards of the Sarbanes-Oxley Act of 2002 and applicable Nasdaq rules. 193 ● Oversee and assess the effectiveness of the relationship between the board of directors and our management. ● Form and delegate authority to subcommittees when appropriate, each subcommittee to consist of one or more members of the nominating and corporate governance committee. Any such subcommittee, to the extent provided in the resolutions of the nominating and corporate governance committee and to the extent not limited by applicable law, shall have and may exercise all the powers and authority of the nominating and corporate governance committee. ● Make regular reports to the board of directors concerning its activities. ● Annually review and reassess the adequacy of the nominating and corporate governance charter and the appendices thereto and recommend any proposed changes to the board of directors for approval. ● Annually evaluate its own performance. ● Maintain appropriate records regarding its process of identifying and evaluating candidates for election to the board of directors. ● Fulfill such other duties and responsibilities as may be assigned to the nominating and corporate governance committee, from time to time, by the board of directors and/or the Chairman of the board of directors. None of the members of the compensation committee has been an executive officer or employee. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers that serves or will serve as a member of our board of directors or compensation committee. Director Qualifications In accordance with its charter, the nominating and corporate governance committee develops and recommends to our board of directors appropriate criteria, including desired qualifications, expertise, skills and characteristics, for selection of new directors and periodically reviews the criteria adopted by our board of directors and, if appropriate, recommends changes to such criteria. Board Diversity Our board of directors desires to seek members from diverse professional backgrounds who combine a strong professional reputation and knowledge of our business and industry with a reputation for integrity. Our board of directors does not have a formal policy with respect to diversity and inclusion but is in process of establishing a policy on diversity. Diversity of experience, expertise and viewpoints is one of many factors the nominating and corporate governance committee considers when recommending director nominees to our board of directors. Further, our board of directors is committed to actively seeking highly qualified women and individuals from minority groups to include in the pool from which new candidates are selected. Our board of directors also seeks members that have experience in positions with a high degree of responsibility or are, or have been, leaders in the companies or institutions with which they are, or were, affiliated, but may seek other members with different backgrounds, based upon the contributions they can make to our company. 194 We believe that our current board composition reflects our commitment to diversity in the areas of gender and professional background. Board Diversity Matrix (as of March 28, 2022) Total Number of Directors 4 Female Male Part I: Gender Identity Directors 1 3 Part II: Demographic Background White 1 3 Limitation on Liability and Indemnification of Directors and Officers Our Certificate of Incorporation limits a director’s liability to the fullest extent permitted under the DGCL. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability: ● for any breach of the director’s duty of loyalty to the corporation or its stockholders; ● for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; ● for unlawful payment of dividend or unlawful stock purchase or redemption pursuant to the provisions of Section 174 of the DGCL; and ● for any transaction from which the director derived an improper personal benefit. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Delaware law and our Bylaws provide that we will, in certain situations, indemnify its directors and officers and may indemnify other employees and other agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding. In addition, we intend to enter into separate indemnification agreements with our directors and officers. These agreements, among other things, require us to indemnify our directors and officers for certain expenses, including attorneys’ fees, judgments, fines, and settlement amounts incurred by a director or officer in any action or proceeding arising out of their services as one of our directors or officers or any other company or enterprise to which the person provides services at our request. We have obtained a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in the Certificate of Incorporation and Bylaws and these indemnification agreements are necessary to attract and retain qualified persons as directors and officers. 195 Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or control persons, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Code of Business Conduct and Ethics for Employees, Executive Officers, and Directors Our board of directors has adopted a Code of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and directors. The Code of Conduct is available at the Investors section of our website at www.allarity.com . Information contained on or accessible through this website is not a part of this Annual Report, and the inclusion of such website address in this Annual Report is an inactive textual reference only. Any amendments to the Code of Conduct, or any waivers of its requirements, are expected to be disclosed on its website to the extent required by applicable rules and exchange requirements. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and Annual Reports concerning their ownership, of Common Stock and other of our equity securities on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of Forms 3, 4 and 5 and amendments thereto filed electronically with the SEC during the most recent fiscal year, we believe that all reports required by Section 16(a) for transactions in the year ended December 31, 2021, were timely filed. ITEM 11. EXECUTIVE COMPENSATION Executive Compensation and Director Compensation Summary Compensation Table The following table provides information regarding total compensation awarded to, earned by, and paid to our named executive officers for services rendered to the Company in all capacities for the fiscal years ended December 31, 2021 and 2020. Name and Principal Position Year Salary Bonus (1,5) Option Awards (2) All Other Compensation ($) Total Steve R. Carchedi, Chief Executive Officer 2020 $ 425,000 $ 283,333 $ — $ 9,945 (3) $ 718,278 2021 $ 427,083 $ 225,000 $ 3,796,636 $ 17,500 (3) $ 4,466,219 Jens E. Knudsen, Chief Financial Officer 2020 $ 41,667 (4) $ — $ 230,667 $ — $ 272,334 2021 $ 253,125 $ 80,500 $ 249,718 $ 583,343 Marie Foegh, Chief Medical Officer 2020 $ 288,000 $ — $ — $ — $ 288,000 2021 $ 291,600 $ 132,480 $ 866,188 $ $ 1,290,268 James G. Cullem, Senior Chief Business Officer 2020 $ 235,000 $ — $ 158,515 $ — $ 393,515 2021 $ 237,938 $ 118,910 $ 1,474,234 $ $ 1,831,082 (1) The bonuses reported in this column for 2020 consist of cash payments. 196 (2) The amounts reported in this column represent the aggregate grant date fair value of service-based option grants awarded to the named executive officer during 2021 and 2020, calculated based on a Black Scholes model. Such grant date fair values do not consider any estimated forfeitures related to service-vesting conditions. This calculation assumes that the named executive officer will perform the requisite service for the award to vest in full as required by SEC rules. The assumptions used in calculating the grant date fair values of the equity awards reported in this column are set forth in Note 18 of the Audited Consolidated Financial Statements for the twelve months ended December 31, 2021, appearing elsewhere in this Annual Report. The amounts reported in this column reflect the accounting cost for these equity awards and do not correspond to the actual economic value that may be realized by named executive officers upon the vesting of the stock options, the exercise of the stock options or the sale of the securities underlying such stock options . (3) Consists of life insurance premiums. (4) Mr. Knudsen was appointed as Chief Financial Officer in November 2020. Total compensation reflects pro-rata compensation since appointment in November 2020. (5) The bonuses reported in this column were earned in 2021 and paid in 2022. Outstanding Equity Awards as of December 31, 2021 The following table sets forth information regarding outstanding equity awards held by our named executive officers as of December 31, 2021, which reflects the conversion of the “Compensatory Warrants” assumed by us upon consummation of our Recapitalization Share Exchange. Name Grant Date Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price (USD) Option Expiration Date Steve R. Carchedi, Chief Executive Officer 09/30/2019 70,477 — (1) — 12.09 09/27/2029 09/15/2021 156,025 — (1) — 8.75 09/15/2026 11/24/2021 89,446 163,109 (2) 5.19 11/23/2026 Jens E. Knudsen, Chief Financial Officer 11/02/2020 15,400 24,200 (3) — 7.75 10/30/2030 11/24/2021 7,998 14,585 (2) — 5.19 11/23/2026 Marie Foegh Chief Medical Officer 11/24/2021 27,743 50,592 (2) — 5.19 11/23/2026 James G. Cullem, Senior Vice President, Corporate Development 09/24/2019 28,191 — (1) — 13.30 09/21/2029 11/24/2021 47,219 86,106 (2) 5.19 03/11/2026 (1) This option was 100% vested as of December 31, 2021. (2) This option vests as to 25% on November 24, 2021, the grant date, and the remaining 75% vests over 36 months. (3) This option vests over 36 months from the grant date of November 2, 2020. 197 Pension Benefits The Company maintains a 401(k) Plan (the “401(k) Plan”) for its full-time employees in the U.S. The 401(k) Plan allows employees of the Company to contribute up to the Internal Revenue Code prescribed maximum amount. Employees may elect to contribute from 1 to 100 percent of their annual compensation to the 401(k) Plan. The 401(k) Plan includes a 3% safe harbor contribution. Both employee and employer contributions vest immediately upon contribution. During fiscal year ended December 31, 2021, the Company’s contributions to the 401(k) Plan amounted to approximately $33,644. Nonqualified Deferred Compensation Our named executive officers did not participate in, nor earn any benefits under, a nonqualified deferred compensation plan during the fiscal year ended December 31, 2021. Employment Agreements and Arrangements We have entered into an employment or consultancy agreement with each of the following named executive officers, Messrs. Carchedi, J. Knudsen and Cullem, and Ms. Foegh. The employment or consultancy agreement with each of the following individuals provides for the initial annual base salary and bonus set forth below. Named Executive Officers and Position Initial Annual Base Salary Steve R. Carchedi, Chief Executive Officer $ 450,000 Jens E. Knudsen, Chief Financial Officer $ 287,500 Marie Foegh, Chief Medical Officer $ 331,200 James G. Cullem, Senior Vice-President/Chief Business Officer $ 270,250 Named Executive Officer Discretionary Annual Bonus for Calendar Year 2021 (1) Steve R. Carchedi, Chief Executive Officer up to 50% of annual base salary Jens E. Knudsen, Chief Financial Officer up to 30% of annual base salary Marie Foegh, Chief Medical Officer up to 40% of annual base salary James G. Cullem, Senior Vice-President/Chief Business Officer Up to 40% annual base salary (1) +/- 20% at the discretion of the board and/or compensation committee The annual bonus payable will be dependent on the achievement of individual and corporate performance targets, metrics and/or management-by-objectives to be determined and approved by our board of directors and/or compensation committee, and such executive officer’s continued performance of services through the scheduled annual incentive compensation payment date of the applicable bonus year. The annual bonus may be paid in cash or equity at the discretion of the board and/or compensation committee. Material Terms of Employment Agreements Unless otherwise indicated, the following material terms of employment agreements apply to all of the named executive officers. The employment agreements with each of the named executive officers provide for at-will employment and may be terminated in writing with thirty (30) days prior written notice. The Chief Executive Officer may accelerate termination after notice; however, the employee will still be paid as if they worked the full 30 days. In the event of change of control (as defined below in the 2021 Equity Incentive Plan, or any other change in control of us similar in effect to that definition) the employment agreement provides for twelve (12) months’ pay at the base salary. If the employment agreement is terminated voluntarily by an employee without good reason, by us for cause, or because of the employee’s incapacity, salary and benefits will cease at the effective date of termination. The named executive will have no duty to attempt to mitigate the severance pay amounts payable by us by seeking employment or otherwise, and no amounts earned from other employment shall reduce the amounts due. 198 Steve R. Carchedi. In the event the employment agreement with Mr. Carchedi is terminated without cause by us or for good reason by Mr. Carchedi, the employment agreement provides for severance payment equal to eighteen (18) months’ pay at the base salary rate. Jens E. Knudsen . In the event the employment agreement with Mr. Knudsen is terminated without cause by us or for good reason by Mr. Knudsen, the employment agreement provides for severance payment equal to four (4) months’ pay (after December 1, 2022, six (6) months’ pay) at the base salary rate. Marie Foegh . In the event the employment agreement with Ms. Foegh is terminated without cause by us or for good reason by Ms. Foegh, the employment agreement provides for severance payment equal to six (6) months’ pay at the base salary rate. James G. Cullem . In the event the employment agreement with Mr. Cullem is terminated without cause by us or for good reason by Mr. Cullem, the employment agreement provides for severance payment equal to eight (8) months’ pay at the base salary rate. Bonus and Annual Bonus Plan Our executive officers are entitled to bonuses subject to and pursuant to the terms of their respective employment or consultancy agreement. Stock Options as of December 31, 2021 Prior to the closing of the Recapitalization Share Exchange, Allarity Therapeutics A/S had 58,749,579 compensatory warrants conferring the right to subscribe for Allarity Therapeutics A/S ordinary shares. At the effective time of the Recapitalization Share Exchange, each warrant (option) to purchase Allarity Therapeutics A/S ordinary shares held by the officers, directors, employees and consultants (each, a “Compensatory Warrant”) that is outstanding immediately prior to the effective time, whether vested or unvested, was converted into an option (each, a “Converted Option”) to purchase a number of shares of our common stock equal to the product (rounded down to the nearest whole number) of (a) the number of ordinary shares of Allarity Therapeutics A/S subject to such Compensatory Warrant immediately prior to the effective time multiplied by (b) the exchange ratio, at an exercise price per share (rounded up to the nearest whole cent) equal to (i) the exercise price per share of such Compensatory Warrant immediately prior to the effective time divided by (ii) the exchange ratio and then converted into U.S. dollars; provided, however, that the exercise price and the number of shares of our common stock purchasable pursuant to the Converted Options to be determined in a manner consistent with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”); provided, further, however, that in the case of any Converted Option to which Section 422 of the Code applies, the exercise price and the number of shares of common stock purchasable pursuant to such option have been determined in accordance with the foregoing, subject to such adjustments in a manner consistent with Treasury Regulation Section 1.424-1, such that the Converted Option does not constitute a modification of such Converted Option for purposes of Section 409A or Section 424 of the Code. Upon the closing of the Recapitalization Share Exchange and as of December 31, 2021, we had converted compensatory options to purchase ordinary shares of Allarity Therapeutics A/S to options to purchase 1,174,992 shares of our common stock. Except as specifically provided above, following the effective time of our Recapitalization Share Exchange, each Converted Option continues to be governed by the same terms and conditions (including vesting and exercisability terms) as were applicable to the corresponding former Compensatory Warrant immediately prior to the effective time. 199 Other Benefits Our employees are eligible to participate in various employee benefit plans, including medical, dental, and vision care plans, flexible spending accounts for health and dependent care, life, accidental death and dismemberment, disability, and paid time off. As of January 1, 2022, the Company pays 100% for health, dental and vision care benefits. Employee Benefit Plans Equity-based compensation has been and will continue to be an important foundation in executive compensation packages as we believe it is important to maintain a strong link between executive incentives and the creation of stockholder value. We further believe that performance and equity-based compensation can be an important component of the total executive compensation package for maximizing stockholder value while, at the same time, attracting, motivating, and retaining high-quality executives. Formal guidelines for the allocations of cash and equity-based compensation have not yet been determined, but it is expected that the 2021 Equity Incentive Plan (“2021 Plan”) described below will be an important element of our compensation arrangements for both executive officers and directors. 2021 Equity Incentive Plan Our 2021 Plan became effective on December 20, 2021. It was approved by shareholders in connection with the Recapitalization Share Exchange. Our 2021 Plan authorizes the award of stock options, Restricted Stock Awards (“RSAs”), Stock Appreciation Rights (“SARs”), Restricted Stock Units (“RSUs”), cash awards, performance awards and stock bonus awards. We have initially reserved 1,211,374 shares of our common stock under the 2021 Plan. The number of shares reserved for issuance under our 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of 5% of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31, or a number as may be determined by our board of directors. In addition, the following shares will again be available for issuance pursuant to awards granted under our 2021 Plan: ● shares subject to options or SARs granted under our 2021 Plan that cease to be subject to the option or SAR for any reason other than exercise of the option or SAR; ● shares subject to awards granted under our 2021 Plan that are subsequently forfeited or repurchased by us at the original issue price; ● shares subject to awards granted under our 2021 Plan that otherwise terminate without such shares being issued; ● shares subject to awards granted under our 2021 Plan that are surrendered, cancelled or exchanged for cash or a different award (or combination thereof); and ● shares subject to awards under our 2021 Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award. Purpose. The purpose of our 2021 Plan is to provide incentives to attract, retain, and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents, Subsidiaries, and Affiliates that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards. Administration. Our 2021 Plan is expected to be administered by our compensation committee, all of the members of which are outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. Subject to the terms and conditions of the 2021 Plan, the compensation committee will have the authority, among other things, to select the persons to whom awards may be granted, construe and interpret our 2021 Plan as well as to determine the terms of such awards and prescribe, amend and rescind the rules and regulations relating to the plan or any award granted thereunder. The 2021 Plan provides that the board of directors or compensation committee may delegate its authority, including the authority to grant awards, to one or more executive officers to the extent permitted by applicable law, provided that awards granted to non-employee directors may only be determined by our board of directors. 200 Eligibility. Our 2021 Plan provides for the grant of awards to our employees, directors, consultants, independent contractors and advisors. Options. The 2021 Plan provides for the grant of both incentive stock options intended to qualify under Section 422 of the Code, and non-statutory stock options to purchase shares of our common stock at a stated exercise price. Incentive stock options may only be granted to employees, including officers and directors who are also employees. The exercise price of stock options granted under the 2021 Plan must be at least equal to the fair market value of our common stock on the date of grant. Incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock must have an exercise price of at least 110% of the fair market value of our common stock on the date of grant. Subject to stock splits, dividends, recapitalizations, or similar events, no more than 7,009,980 shares may be issued pursuant to the exercise of incentive stock options granted under the 2021 Plan. Options may vest based on service or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable, with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2021 Plan is ten years from the date of grant, except that the maximum permitted term of incentive stock options granted to an individual who holds, directly or by attribution, more than ten percent of the total combined voting power of all classes of our capital stock is five years from the date of grant. Restricted stock awards. An RSA is an offer by us to sell shares of our common stock subject to restrictions, which may lapse based on the satisfaction of service or achievement of performance conditions. The price, if any, of an RSA will be determined by the compensation committee. Holders of RSAs will have the right to vote and any dividends or stock distributions paid pursuant to unvested RSAs will be accrued and paid when the restrictions on such shares lapse. Unless otherwise determined by the compensation committee at the time of award, vesting will cease on the date the participant no longer provides services to us and unvested shares may be forfeited to or repurchased by us. Stock appreciation rights. A SAR provides for a payment, in cash or shares of our common stock (up to a specified maximum of shares, if determined by our compensation committee), to the holder based upon the difference between the fair market value of our common stock on the date of exercise and a predetermined exercise price, multiplied by the number of shares. The exercise price of a SAR must be at least the fair market value of a share of our common stock on the date of grant. SARs may vest based on service or achievement of performance conditions and may not have a term that is longer than ten years from the date of grant. Restricted stock units. RSUs represent the right to receive shares of our common stock at a specified date in the future and may be subject to vesting based on service or achievement of performance conditions. Payment of earned RSUs will be made as soon as practicable on a date determined at the time of grant, and may be settled in cash, shares of our common stock or a combination of both. No RSU may have a term that is longer than ten years from the date of grant. Performance awards. Performance awards granted pursuant to the 2021 Plan may be in the form of a cash bonus, or an award of performance shares or performance units denominated in shares of our common stock that may be settled in cash, property or by issuance of those shares subject to the satisfaction or achievement of specified performance conditions. Stock bonus awards. A stock bonus award provides for payment in the form of cash, shares of our common stock or a combination thereof, based on the fair market value of shares subject to such award as determined by our compensation committee. The awards may be granted as consideration for services already rendered, or at the discretion of the compensation committee, may be subject to vesting restrictions based on continued service or performance conditions. 201 Cash awards. A cash award is an award that is denominated in, or payable to an eligible participant solely in, cash. Dividend equivalents rights. Dividend equivalent rights may be granted at the discretion of our compensation committee and represent the right to receive the value of dividends, if any, paid by us in respect of the number of shares of our common stock underlying an award. Dividend equivalent rights will be subject to the same vesting or performance conditions as the underlying award and will be paid only at such time as the underlying award has become fully vested. Dividend equivalent rights may be settled in cash, shares or other property, or a combination of thereof as determined by our compensation committee. Change of control. Our 2021 Plan provides that, in the event of a corporate transaction, as defined in the 2021 Plan, outstanding awards under our 2021 Plan shall be subject to the agreement evidencing the corporate transaction, any or all outstanding awards may be (a) continued by us, if we are the successor entity; or (b) assumed or substituted by the successor corporation, or a parent or subsidiary of the successor corporation, for substantially equivalent awards (including, but not limited to, a payment in cash or the right to acquire the same consideration paid to the stockholders of the company pursuant to the corporate transaction); (c) substituted by the successor corporation of equivalent awards with substantially the same terms for such outstanding awards; (d) accelerated in full or in part as to the exercisability or vesting; (e) settled in the full value of such outstanding award in cash, cash equivalents, or securities of the successor entity (or its parent, if any) with a fair market value equal to the required amount, followed by the cancellation of such awards; or (f) cancelled for no consideration. If applicable, the number and kind of shares and exercise prices of awards being continued, assumed, or substituted shall be adjusted pursuant to the terms of the 2021 Plan. Adjustment. In the event of a change in the number of outstanding shares of our common stock without consideration by reason of a stock dividend, extraordinary dividend or distribution, recapitalization, stock split, reverse stock split, subdivision, combination, consolidation reclassification, spin-off or similar change in our capital structure, appropriate proportional adjustments will be made to the number and class of shares reserved for issuance under our 2021 Plan; the exercise prices, number and class of shares subject to outstanding options or SARs; the number and class of shares subject to other outstanding awards; and any applicable maximum award limits with respect to incentive stock options. Exchange, repricing, and buyout of awards. Our compensation committee may, with the consent of the respective participants, issue new awards in exchange for the surrender and cancelation of any or all outstanding awards. Our compensation committee may also reduce the exercise price of options or SARs or buy an award previously granted with payment in cash, shares, or other consideration, in each case, subject to the terms of the 2021 Plan. Director compensation limits. No non-employee director may receive awards under our 2021 Plan with a grant date value that when combined with cash compensation received for his or her service as a director, exceeds $750,000 in a calendar year or $1,000,000 in the calendar year of his or her initial service. Clawback; transferability. All awards will be subject to clawback or recoupment pursuant to any compensation clawback or recoupment policy adopted by our board of directors (or a committee thereof) or required by law during the term of service of the award holder, to the extent set forth in such policy or applicable agreement. Except in limited circumstances, awards granted under our 2021 Plan may generally not be transferred in any manner prior to vesting other than by will or by the laws of descent and distribution. Amendment and termination. Our board of directors may amend our 2021 Plan at any time, subject to stockholder approval as may be required. Our 2021 Plan will terminate ten years from the date our board of directors adopts the plan unless it is terminated earlier by our board of directors. No termination or amendment of the 2021 Plan may adversely affect any then-outstanding award without the consent of the affected participant, except as is necessary to comply with applicable laws. 202 Non-Employee Director Compensation The following table sets forth information concerning the compensation of non-employee directors for services rendered for the year ended December 31, 2021. Mr. Carchedi also served as our director and Mr. Carchedi’s compensation as named executive officer is set forth above under “Summary Compensation Table.” Name Fees Earned or Paid in Cash $ Option Awards (1)(2) $ Total $ Duncan Moore $ 46,315 $ 417,089 $ 463,404 Søren G. Jensen $ 73,145 (3) $ 256,666 $ 329,811 Gail Maderis $ 45,344 $ 256,666 $ 302,010 (1) Amounts reported represent the aggregate grant date fair value of stock options granted to such non-employee directors and have been computed based on a Black Scholes model and excludes the effect of estimated forfeitures. The assumptions used in calculating the grant date fair values of the equity awards reported in this column are set forth in Note 18 of our Audited Consolidated Financial Statements for the fiscal year ended December 31, 2021, appearing at the end of this Annual Report. The amounts reported in this column reflect the accounting cost for these equity awards and do not correspond to the actual economic value that may be realized by the directors upon the vesting of the stock options, the exercise of the stock options or the sale of the securities underlying such stock options. (2) The table below lists the aggregate number of shares subject to option awards outstanding for each of the non-employee directors as of December 31, 2021. Name Number of Shares Subject to Outstanding Options Duncan Moore 41,994 Søren G. Jensen 26,242 Gail Maderis 26,242 (3) Directors have an option to receive their fees paid in equity. Mr. Jensen previously asked for his fees for quarters ended March 31, 2021, and June 30, 2021, be paid in common shares. As the Company was unable to facilitate this request, in lieu of payment in the form of equity, the Company paid Mr. Jensen an additional $27,831 which was the difference between the share price on July 26, 2021, the time of the request and the share price on August 31, 2021, the time the payment was settled. Director Compensation Our non-employee directors are entitled to an annual director fee of $35,000, and an annual grant of 12,500 stock options to purchase shares of common stock, which will vest at the earlier of (1) twelve (12) months, or (2) next annual meeting so long as the director has served on the board of directors for at least six (6) months. In addition, a director who serves as a lead independent director or chair or on a committee of the board of directors will receive the following additional annual fee: Position Annual Chair/Lead Fee Annual Member Fee Chairman of the Board or Lead Independent Director $ 30,000 $ — Audit Committee $ 15,000 $ 7,500 Compensation Committee $ 10,000 $ 5,000 Nominating and Corporate Governance Chair $ 8,000 $ 4,000 Annual fees may be paid in cash or equity at the option of the director. In addition, new directors who join the board of directors will receive an initial grant of 25,000 stock options to purchase shares of common stock, subject to thirty-six (36) month vesting. 203 Emerging Growth Company Status We are an “emerging growth company,” as defined in the JOBS Act. As an emerging growth company we are exempt from certain requirements related to executive compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our President and Chief Executive Officer to the median of the annual total compensation of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Act. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS RELATED STOCKHOLDER MATTERS The following table and accompanying footnotes set forth information the beneficial ownership of our common stock as of May 1, 2022 by: ● each person who is known to be the beneficial owner of more than 5% of our common stock; ● our current executive officers and each of our current directors; and ● all of our executive officers and directors as a group. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which includes the power to dispose of or to direct the disposition of the security or has the right to acquire such powers within sixty (60) days. The beneficial ownership of shares of our common stock excludes any common stock underlying any convertible preferred stock issued or owned by the Investor because of its beneficial ownership limitation of 4.99%. The Investor’s beneficial ownership limitation may be adjusted to a beneficial ownership limitation of 9.99% upon 61 days’ prior written notice. We have not received notice to increase adjustment as of the date hereof. If there were no beneficial ownership limitation for the Investor, as of December 20, 2021, the Preferred Shares could be converted into 2,018,958 shares of our common stock and if the PIPE Warrant could be exercised for up to 2,018,958 shares of common stock. The beneficial ownership of our common stock is based on 8,842,290 shares of common stock issued and outstanding as of May 1, 2022. Unless otherwise noted in the footnotes to the following table, and subject to applicable community property laws, the persons and entities named in the table have sole voting and investment power with respect to their beneficially owned common stock. Additionally, except as set forth in the footnote, the following table does not reflect record or beneficial ownership of any shares of common stock issuable upon exercise of warrants, options, or convertible preferred stock, to the extent such securities are not exercisable or convertible within sixty (60) days of May 1, 2022. 204 Name of Beneficial Owner (1)(2) Number of Common Stock Percentage of Class 5% and Greater Holders: Sass & Larsen ApS (3) 1,084,239 12.26 % Forsakringsaktiebolaget Avanza Pension (4) 566,950 6.41 % Directors and Executive Officers Steve R. Carchedi (5) 347,514 3.78 % Jens E. Knudsen (6) 32,744 * James G. Cullem (7) 92,072 * Marie Foegh (8) 41,517 * Steen Knudsen (9) 162,506 1.83 % Thomas Jensen (10) 95,229 1.07 % Duncan Moore (11) 32,296 * Søren Gade Jensen (12) 8,960 * Gail Maderis (13) 6,160 * All directors and executive officers as a group (9 individuals) 818,998 8.63 % * Less than one percent (1%). (1) Unless otherwise noted, the business address of each of the following entities or individuals is c/o Allarity Therapeutics, Inc., 210 Broadway, Suite 201, Cambridge, MA 02139. (2) Excludes shares of common stock that may be issued to and acquired by 3i in the PIPE investment. (3) Based on Schedule 13G filed with the SEC on December 22, 2021, consists of (i) 21,468 shares of common stock held in the name of Leon Sass, and (ii) 1,064,770 shares of common stock owned by Sass & Larsen ApS. Messrs. Leon Sass and Benny Sass are the beneficial owners of Sass & Larsen ApS. Messrs. Leon Sass and Benny Sass each beneficially own 50% of Sass & Larsen ApS, respectively, and may be deemed to beneficially own such shares of common stock held directly by Sass & Larsen ApS. Sass & Larsen ApS and Mr. Benny Sass each disclaim beneficial ownership of securities held in the name of Mr. Leon Sass. (4) Based on Schedule 13G/A filed with the SEC on January 20, 2022. Address is Box 13129 Stockholm, Sweden 10303. (5) Interests shown include 347,514 shares of common stock issuable upon exercise of vested options within sixty (60) days. (6) Interests shown include 32,744 shares of common stock issuable upon exercise of vested options within sixty (60) days. (7) Interests shown include 92,072 shares of common stock issuable upon exercise of vested options within sixty (60) days. (8) Interests shown include (i) 3,988 shares of common stock, and (ii) 37,529 shares of common stock issuable upon exercise of vested options within sixty (60) days. (9) Interests shown include (i) 124,977 shares of common stock, and (ii) 37,529 shares of common stock issuable upon exercise of vested options within sixty (60) days. (10) Interests shown include (i) 17,842 shares of common stock, and (ii) 77,387 shares issuable upon exercise of vested options within sixty (60) days. (11) Interests shown include (i) 22,673 shares of common stock, and (ii) 9,623 shares of common stock issuable upon exercise of vested options within sixty (60) days. (12) Interests shown include (i) 2,800 shares of common stock, and (ii) 6,160 shares of common stock issuable upon exercise of vested options within sixty (60) days. (13) Interests shown include 6,160 shares of common stock issuable upon exercise of vested options within sixty (60) days. 205 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Transactions with related parties The Registrant did not enter into a transaction that is required to be disclosed under Item 404 of Regulation S-K. 206 Related Person Transactions Policy We plan to adopt a new written related person transactions policy that sets forth our policies and procedures regarding the identification, review, consideration, and oversight of “related person transactions.” For purposes of policy only, a “related person transaction” is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements or relationships) in which we or any of our subsidiaries are participants involving an amount, as long as we are a SEC smaller reporting company, that exceeds the lesser of (a) $120,000 or (b) 1% of the average of our total assets for the last two completed fiscal years, in which any “related person” has a material interest. Transactions involving compensation for services provided to us as an employee, consultant or director will not be considered related person transactions under this policy. A related person is any executive officer, director, nominee to become a director or a holder of more than 5% of any class of our voting securities (including our common stock), including any of their immediate family members and affiliates, including entities owned or controlled by such persons. Under the policy, the related person in question or, in the case of transactions with a holder of more than 5% of any class of our voting securities, an officer with knowledge of a proposed transaction, must present information regarding the proposed related person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review. To identify related person transactions in advance, we will rely on information supplied by our executive officers, directors and certain significant shareholders. In considering related person transactions, our audit committee will take into account the relevant available facts and circumstances, which may include, but are not limited to: ● the risks, costs, and benefits to us; ● the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated; ● the terms of the transaction; ● the availability of other sources for comparable services or products; ● the terms available to or from, as the case may be, unrelated third parties; and ● our audit committee will approve only those transactions that it determines are fair and in our best interests. Director Independence A majority of our Board of Directors are independent directors, see the discussion above under the section “Item 10. Directors, Executive Officers and Corporate Governance–Director Independence.” ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES For the year ended December 31, 2021, the Company’s independent public accounting firm was Marcum LLP. For the year ended December 31, 2020, the independent public accounting firm for our predecessor, Allarity Therapeutics A/S, was PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab (“PwC”). 207 Fees Paid to Principal Independent Registered Public Accounting Firm The aggregate fees billed by PwC, our former Independent Registered Public Accounting Firm, for the years ended December 31, 2021 and 2020 are as follows: 2021 2020 Audit fees(1) $ 1,253,363 $ 54,903 Tax fees(2) 247,816 7,593 All other fees(3) 2,626 11,359 Total $ 1,503,805 $ 73,856 (1) 2020 Audit fees represents statutory audit fees related to our audit of our IFRS financial statements filed while the Company was operating as Oncology Ventures A/S and listed on Nasdaq First North. 2021 Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report. The audit fees for 2021 also include the services provided in reviewing our Registration Statements on Form S-4 and Form S-1 as well as reviewing the agreements around our reorganization completed on December 20, 2021. (2) PwC provided us with tax advice and tax planning services as part of our reorganization completed on December 20, 2021, before we became a US domestic filer. (3) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding two categories. On December 21, 2021, we engaged Marcum as our Independent Registered Public Accounting Firm. The aggregate fees billed by Marcum, for the year ended December 31, 2021, is as follows: 2021 Audit fees(1) $ 427,588 Audit related fees(2) 20,600 Tax fees(3) — All other fees(4) — Total $ 448,188 (1) Audit fees represent fees for professional services provided in connection with the audit of our annual financial statements and the review of our quarterly financial statements and those services normally provided in connection with statutory or regulatory filings or engagements including comfort letters, consents and other services related to SEC matters. This information is presented as of the latest practicable date for this annual report. (2) Audit-related fees represent fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and not reported above under “Audit Fees.” (3) Marcum did not provide us with tax compliance, tax advice or tax planning services. (4) All other fees include fees billed by our independent auditors for products or services other than as described in the immediately preceding three categories. No such fees were incurred during the fiscal years ended December 31, 2021. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm Our audit committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm, the scope of services provided by our independent registered public accounting firm and the fees for the services to be performed. These services may include audit services, audit-related services, tax services and other services. Pre-approval is detailed as to the service or category of services and is generally subject to a specific budget. Our independent registered public accounting firm and management are required to periodically report to the audit committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this preapproval, and the fees for the services performed to date. 208 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (1) Financial Statements The following financial statements of Allarity, and the Reports of Independent Registered Public Accounting Firms, are included at the end of this report beginning on page F-1: Pages Consolidated Financial Statements For the years ended December 31, 2021 and 2020 Report of Independent Registered Public Accounting Firm (Marcum, LLP, Philadelphia, PA, PCAOB ID #688) F-2 Report of Independent Registered Public Accounting Firm (PWC, Copenhagen, Denmark, PCAOB ID # 1081) F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Loss F-5 Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity F-6 – F-7 Consolidated Statements of Cash Flows F-8 – F-9 Notes to Consolidated Financial Statements F-10 – F-60 (2) Financial Statement Schedules All schedules have been omitted because the required information is included in the financial statements or notes thereto or because they are not required. (3) Exhibits The exhibits required by Item 601 of Regulation S-K are listed in subparagraph (b) below. 209 (b) Exhibits: The following exhibits are filed as part of this Annual Report. Exhibit No. Description 2.1 (e) Amended and Restated Plan of Reorganization and Asset Purchase Agreement by and among Allarity Therapeutics, Inc. a Delaware corporation, Allarity Acquisition Subsidiary, a Delaware corporation and Allarity Therapeutics A/S, an Aktieselskab organized under the laws of Denmark, dated as of September 23, 2021 3.1 (a) Certificate of Incorporation of Allarity Therapeutics, Inc. 3.2 (b) Certificate of Amendment to the Certificate of Incorporation of Allarity Therapeutics, Inc. 3.3 (c) Amended and Restated Bylaws of Allarity Therapeutics, Inc. 3.4 (g) Certificate of Designations of Allarity Therapeutics, Inc. relating to the Series A Convertible Preferred Stock 4(vi)* Description of Capital Stock 4.1 (b) Specimen Common Stock Certificate of Allarity Therapeutics, Inc. 4.2 (a) Form of Warrant 10.1# (e) Allarity Therapeutics, Inc. 2021 Equity Incentive Plan 10.2† (a) Exclusive License Agreement between Oncology Venture A/S and Smerud Medical Research International As Dated as of June 26, 2020 10.3† (a) Amended and Restated License Agreement between Allarity Therapeutics A/S and LiPlasome Pharma ApS, dated January 2021 10.4† (a) Exclusive License Agreement between Oncology Venture, APS and 2-BBB Medicines BV, dated as of March 27, 2017 10.5† (c) Development, Option and License Agreement between Oncology Venture ApS and R-Pharm US Operating LLC, dated March 1, 2019 10.6† (c) Exclusive License Agreement between Oncology Venture, ApS and Eisai, Inc., dated as of July 6, 2017 10.7 † (c) License Agreement between Novartis Pharma Ag and Oncology Venture, ApS, dated April 6, 2018 10.8 + (a) Securities Purchase Agreement dated May 20, 2021 between Allarity Therapeutics, Inc. and 3i, LP 10.9 (a) Registration Rights Agreement dated May 20, 2021 between Allarity Therapeutics, Inc. and 3i, LP 10.10 † (a) Asset Purchase Agreement dated July 23, 2021 between Allarity Therapeutics A/S and Lantern Pharma Inc. 10.11 (c) First Amendment to the Exclusive License Agreement between Eisai and Allarity Therapeutics A/S dated December 20, 2020. 10.12 (d) Second Amendment to Exclusive License Agreement between Oncology Venture, ApS and Eisai, Inc. dated as of August 3, 2021. 10.13# (f) Employment Agreement by and between Allarity Therapeutics, Inc. and Jens. E. Knudsen 10.14# (f) Employment Agreement by and between Allarity Therapeutics, Inc. and James G. Cullem 10.15# (f) Employment Agreement by and between Allarity Therapeutics, Inc. and Marie Foegh, M.D. 10.16 (h) Asset Purchase Agreement between Allarity Therapeutics, Inc. and Allarity Therapeutics A/S dated December 17, 2021 10.17* Assignment and Assumption Agreement between Allarity Therapeutics, Inc. and Allarity A/S 10.18†* Exclusive License Agreement with Oncoheroes Bioscience, Inc. dated January 2, 2022 (Stenoparib) 10.19†* Exclusive License Agreement with Oncoheroes Bioscience, Inc. dated January 2, 2022 (Dovitnib) 10.20†* Amended and Restated License Agreement among Allarity Therapeutics Europe ApS, LiPlasome Pharma ApS, and Chosa ApS dated M arch 28, 2022 10.21†* Support A greement between Allarity Therapeutics A/S and LiPlasome Pharma ApS, dated M arch 28, 2022 10.22 (i) First Amendment to License Agreement between Novartis Pharma Ag and Allarity Therapeutics Europe ApS 10.23 (i) Convertible Promissory Note 10.24 (j) Forbearance Agreement and Waiver. 16.1 (a) Letter from PriceWaterhouseCoopers, dated August 20, 2021, regarding Change in Independent Registered Public Accounting Firm 210 21.1* Subsidiaries of the Registrant 31.1* Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 32.1* Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 3 2.2* Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 101.INS Inline XBRL Instance Document. 101.SCH Inline XBRL Taxonomy Extension Schema Document. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). (a) Incorporated by reference from the Registration Statement on Form S-4 filed with the SEC on August 20, 2021. (b) Incorporated by reference from Amendment No. 1 to Registration Statement on Form S-4 as refiled with the SEC on October 20, 2021. (c) Incorporated by reference from Amendment No. 2 to Registration Statement on Form S-4 as refiled with the SEC on October 20, 2021. (d) Incorporated by reference from Amendment No. 4 to Registration Statement on Form S-4 as filed with the SEC on November 2, 2021. (e) Incorporated by reference from Amendment No. 2 to Registration Statement on Form S-1 as filed with the SEC on December 6, 2021. (f) Incorporated by reference from Form 8-K as filed with the SEC on December 10, 2021. (g) Incorporated by reference from Form 8-K as filed with the SEC on December 20, 2021. (h) Incorporated by reference from Form 8-K filed with the SEC on December 22, 2021. (i) Incorporated by reference from Form 8-K filed with the SEC on April 18, 2022. (j) Incorporated by reference from Form 8-K filed with the SEC on May 6, 2022. † Certain portions of this exhibit will be omitted because they are not material and would likely cause competitive harm to the registrant if disclosed. * Filed herewith. # Indicates management contract or compensatory plan or arrangement. + Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. 211 ITEM 16. Form 10-K Summary None. 212 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ALLARITY THERAPEUTICS, INC. By: /s/ Steve Carchedi Name: Steve Carchedi Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Steve Carchedi Chief Executive Officer and Director May 16, 2022 Steve Carchedi ( Principal Executive Officer ) /s/ Jens Erik Knudsen Chief Financial Officer May 16, 2022 Jens Erik Knudsen ( Principal Financial and Accounting Officer ) /s/ Duncan Moore Chairman of the Board May 16, 2022 Duncan Moore /s/ Soren Gade Jensen Director May 16, 2022 Soren Gade Jensen /s/ Gail Maderis Director May 16, 2022 Gail Maderis 213 INDEX TO FINANCIAL STATEMENTS Pages Consolidated Financial Statements For the years ended December 31, 2021 and 2020 Report of Independent Registered Public Accounting Firm (Marcum, LLP, Philadelphia, PA, PCAOB ID # 688) F-2 Report of Independent Registered Public Accounting Firm (PWC, Copenhagen, Denmark, PCAOB ID # 1081 ) F-3 Consolidated Balance Sheets F-4 Consolidated Statements of Operations and Comprehensive Loss F-5 Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity F-6 – F-7 Consolidated Statements of Cash Flows F-8 – F-9 Notes to Consolidated Financial Statements F-10 – F-60 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Allarity Therapeutics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Allarity Therapeutics, Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses, has a significant accumulated deficit and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2021. Marcum llp Philadelphia, Pennsylvania May 16, 2022 F- 2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Allarity Therapeutics Inc. Opinion on the Financial Statements We have audited the consolidated balance sheet of Allarity Therapeutics Inc. and its subsidiaries (the “Company”) as of December 31, 2020, and the related statements of operations and comprehensive loss, of stockholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant losses and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab Copenhagen, Denmark August 20, 2021, except for the effects of the reverse recapitalization discussed in Note 2a and the restatement discussed in Note 3 to the consolidated financial statements, as to which the date is May 16, 2022 We served as the Company’s auditor from 2006 to 2021. F- 3 ALLARITY THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS As at December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2021 $ 2020 (Restated) $ ASSETS Current assets Cash 19,555 298 Other current assets 625 335 Prepaid expenses 36 174 Tax credit receivable 838 908 Total current assets 21,054 1,715 Non-current assets: Investment in Lantern Pharma Inc. stock 350 845 Property, plant and equipment, net 8 21 Operating lease right of use assets 86 331 Intangible assets, net 28,135 30,491 Total assets 49,633 33,403 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Line of credit — 84 Accounts payable 698 2,116 Accrued liabilities 8,590 1,840 Warrant liability 11,273 — Income taxes payable 60 57 Operating lease liabilities, current 98 109 Convertible debt — 1,327 Total current liabilities 20,719 5,533 Non-current liabilities Convertible promissory note and accrued interest, net 979 880 Derivative liabilities 7,181 149 Operating lease liabilities, net of current portion 9 267 Deferred tax 1,961 2,135 Total liabilities 30,849 8,964 Commitments and contingencies (Note 26) Redeemable convertible preferred stock Series A Convertible Preferred stock $ 0.0001 par value ( 500,000 shares authorized) 19,800 issued and outstanding at December 31, 2021. 632 — Stockholders’ equity Common stock, $ 0.0001 par value ( 30,000,000 shares authorized) 8,096,014 and 4,252,021 shares issued and outstanding at December 31, 2021 and 2020 respectively 810 426 Additional paid-in capital 84,434 62,482 Accumulated other comprehensive (loss) income ( 600 ) 1,375 Accumulated deficit ( 66,492 ) ( 39,844 ) Total stockholders’ equity 18,152 24,439 Total liabilities, redeemable convertible preferred stock & stockholders’ equity 49,633 33,403 The accompanying notes are an integral part of the consolidated financial statements. F- 4 ALLARITY THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2021 $ 2020 (Restated) $ Operating expenses: Research and development 14,196 4,218 General and administrative 12,360 4,101 Total operating expenses 26,556 8,319 Loss from operations ( 26,556 ) ( 8,319 ) Other income (expenses) Gain from the sale of IP 1,005 — Interest expenses ( 499 ) ( 320 ) Finance costs ( 1,347 ) — (Loss) gain on investment ( 495 ) 708 Foreign exchange (losses) gains, net ( 95 ) 62 Change in fair value adjustment of derivative liabilities 2,087 2,131 Change in fair value of convertible debt ( 474 ) ( 573 ) Loss on extinguishment of convertible debt ( 141 ) ( 108 ) Net other income 41 1,900 Net loss for the year before tax expense ( 26,515 ) ( 6,419 ) Income tax expense ( 133 ) ( 198 ) Net loss ( 26,648 ) ( 6,617 ) Net loss attributable to non-controlling interests — ( 15 ) Net loss attributable common stockholders ( 26,648 ) ( 6,602 ) Basic and diluted net loss available to common stockholders per common share ( 4.19 ) ( 2.03 ) Basic and diluted weighted-average number of common shares outstanding 6,358,988 3,264,780 Net loss ( 26,648 ) ( 6,617 ) Other comprehensive loss, net of tax: Change in cumulative translation adjustment ( 1,966 ) 2,452 Change in fair value attributable to instrument specific credit risk ( 9 ) 9 Total other comprehensive loss ( 28,623 ) ( 4,156 ) Less comprehensive loss attributable to non-controlling interests — ( 15 ) Comprehensive loss attributable to common shareholders ( 28,623 ) ( 4,141 ) The accompanying notes are an integral part of the consolidated financial statements. F- 5 ALLARITY THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share data and where otherwise noted) Series A Convertible Preferred Stock Common Stock Additional Paid in Accumulated Other Comprehensive (Accumulated Stockholders’ Non-Controlling Interest Number Value, net $ Number Value $ Capital $ (Loss) Income $ Deficit) $ Equity $ (net of OCI) $ Total $ Balance December 31, 2019, after effect of reverse recapitalization (Note 4) (restated) — — 2,426,722 243 51,304 ( 1,086 ) ( 33,242 ) 17,219 2,816 20,035 Shares issued for cash — — 361,359 36 2,994 — — 3,030 — 3,030 Debt conversion — — 510,933 51 2,951 — — 3,002 — 3,002 Settlement of Financing Facility (Note 17(c)) — — 186,600 19 2,485 — — 2,504 — 2,504 Acquisition of NCI — — 766,407 77 2,784 — — 2,861 ( 2,861 ) — Share issuance costs — — — — ( 652 ) — — ( 652 ) — ( 652 ) Stock based compensation — — — — 616 — — 616 — 616 Currency translation adjustment — — — — — 2,452 — 2,452 60 2,512 Fair value of instrument specific Credit risk — — — — — 9 — 9 — 9 Loss for the year (restated) — — — — — — ( 6,602 ) ( 6,602 ) ( 15 ) ( 6,617 ) Balance, December 31, 2020 (restated) — — 4,252,021 426 62,482 1,375 ( 39,844 ) 24,439 — 24,439 The accompanying notes are an integral part of the consolidated financial statements. F- 6 ALLARITY THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share data and where otherwise noted) Series A Convertible Preferred Stock Common Stock Additional Paid in Accumulated Other Comprehensive (Accumulated Stockholders’ Non- Controlling Interest Number Value, net $ Number Value $ Capital $ (Loss) Income $ Deficit) $ Equity $ (net of OCI) $ Total $ Balance, December 31, 2020 carried forward (restated) — — 4,252,021 426 62,482 1,375 ( 39,844 ) 24,439 — 24,439 Units issued for cash 20,000 1,318 2,417,824 242 11,883 — — 12,125 — 12,125 Shares issued for cash – exercise of warrants — — 295,537 29 2,943 — — 2,972 — 2,972 Fair value of investor derivative liability warrants — — — — ( 2,000 ) — — ( 2,000 ) — ( 2,000 ) Convertible debt conversion and debt settlement — — 628,192 63 2,817 — — 2,880 — 2,880 Shares issued for services — — 482,250 48 2,336 — — 2,384 — 2,384 Share issuance costs — ( 679 ) — — ( 2,475 ) — — ( 2,475 ) — ( 2,475 ) Stock based compensation — — — — 6,368 — — 6,368 — 6,368 Currency translation adjustment — — — — — ( 1,966 ) — ( 1,966 ) — ( 1,966 ) Fair value of instrument specific Credit risk — — — — — ( 9 ) — ( 9 ) — ( 9 ) Conversion of preferred stock into common stock ( 200 ) ( 7 ) 20,190 2 80 — — 82 — 82 Loss for the year — — — — — — ( 26,648 ) ( 26,648 ) — ( 26,648 ) Balance, December 31, 2021 19,800 632 8,096,014 810 84,434 ( 600 ) ( 66,492 ) 18,152 — 18,152 The accompanying notes are an integral part of the consolidated financial statements. F- 7 ALLARITY THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands) 2021 2020 (Restated) $ $ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 26,648 ) ( 6,617 ) Adjustments to reconcile net (loss) to net cash (used in) operating activities: Gain from the sale of IP ( 1,000 ) — Depreciation and amortization 106 46 Stock-based compensation 6,368 616 Non-cash lease expense — 40 Non-cash interest 238 280 Non-cash finance costs 1,347 — Loss (gain) on investment 495 ( 708 ) Foreign currency losses (gains), net ( 74 ) ( 68 ) Loss on extinguishment of convertible debt 141 108 Change in fair value adjustment of convertible debt 474 573 Change in fair value adjustment of warrant and derivative liabilities ( 2,087 ) ( 2,131 ) Deferred income taxes 20 165 Changes in operating assets and liabilities: Accounts receivable — 95 Other current assets ( 330 ) 510 Tax credit receivable — ( 104 ) Prepaid expenses 130 97 Accounts payable ( 1,311 ) ( 62 ) Income taxes payable 8 33 Accrued liabilities 7,197 ( 36 ) Operating lease liability ( 124 ) ( 88 ) Net cash used in operating activities ( 15,050 ) ( 7,251 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment — ( 3 ) Proceeds from the sale of IP 1,000 — Net cash provided by (used in) investing activities 1,000 ( 3 ) CASH FLOWS FROM FINANCING ACTIVITIES: Line of credit ( 84 ) 84 Proceeds from common stock units and preferred stock issuance 32,125 3,703 Proceeds from exercise of warrants 2,765 — Share issuance costs ( 484 ) ( 223 ) Series A preferred share issuance costs ( 1,557 ) — Proceeds from convertible loan 1,140 3,002 Loan proceeds 2,858 — Repayment of loan ( 2,944 ) ( 533 ) Net cash provided in financing activities 33,819 6,033 Net increase (decrease) in cash 19,769 ( 1,221 ) Effect of exchange rate changes on cash ( 512 ) ( 5 ) Cash, beginning of year 298 1,524 Cash, end of year 19,555 298 The accompanying notes are an integral part of the consolidated financial statements. F- 8 ALLARITY THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.) For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands) 2021 $ 2020 $ Supplemental disclosure of cash flow information Cash paid for income taxes 118 — Cash paid for interest 262 40 Supplemental disclosure of non-cash investing and financing activities: Conversion of convertible debt to equity 2,825 3,163 Conversion of investor warrants 206 — Shares issued to settle accounts payable 55 — Conversion of derivative liability to equity — 1,412 Conversion of Series A Convertible Preferred stock to equity 82 — Acquisition of NCI — 1,873 Non-cash share issuance costs 2,384 429 Right of use asset modification 145 — The accompanying notes are an integral part of the consolidated financial statements. F- 9 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 1. Nature of the business (a) Reorganization Effective December 20, 2021, and in connection with the Plan of Reorganization and Asset Purchase Agreement which was amended and restated on September 23, 2021, between Allarity Therapeutics, Inc. a Delaware corporation (the “Company”), Allarity Acquisition Subsidiary Inc., the Company’s wholly owned Delaware subsidiary (“Acquisition Sub”), and Allarity Therapeutics A/S, an Aktieselskab organized under the laws of Denmark (“Allarity A/S”), the Company completed an Asset Purchase Agreement with Acquisition Sub and Allarity A/S pursuant to which Allarity A/S sold, and Acquisition Sub purchased, all of Allarity A/S’ assets and certain specified liabilities in connection with Allarity A/S’ business for an aggregate purchase price of 8,075,824 shares of the Company’s common stock plus the assumption of specified liabilities. Thereafter, Allarity A/S is in the process of being dissolved and liquidated in accordance with Part 14 of Danish Companies Act. While Allarity Therapeutics, Inc. was the legal acquirer of Allarity Therapeutics A/S, for accounting purposes, the Merger is treated similarly to a reverse recapitalization, whereby Allarity Therapeutics A/S is deemed to be the accounting acquirer, and the historical financial statements of Allarity Therapeutics A/S became the historical financial statements of Allarity Therapeutics, Inc. upon the closing of the reorganization. Under this method of accounting, Allarity Therapeutics, Inc. was treated as the “acquired” company and Allarity Therapeutics A/S is treated as the acquirer for financial accounting purposes. Accordingly, for accounting purposes, the reorganization was treated as the equivalent of Allarity Therapeutics A/S issuing stock for the net assets of Allarity Therapeutics, Inc. accompanied by a recapitalization. Because the reorganization is a common control transaction the net assets and prior year financial statements were stated at historical cost, with no goodwill or other intangible assets recorded. In accordance with ASC 805, the legal capital of Allarity Therapeutics A/S has been retroactively adjusted to reflect the capital of the legal acquirer (accounting acquiree) Allarity Therapeutics, Inc. (b) Principal Operations and Activities The Company’s principal operations are located at Venlighedsvej 1, 2970 Horsholm, Denmark. The Company’s United States operations are located at 210 Broadway #201, Cambridge, MA 012139, United States of America. The Company develops drugs for the personalized treatment of cancer using drug specific companion diagnostics (cDx) generated by its proprietary drug response predictor technology, DRP ® . Additionally, the Company, through its Danish subsidiary, Allarity Denmark (previously Oncology Venture ApS), specializes in the research and development of anti-cancer drugs. (c) Risks and Uncertainties The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. F- 10 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 1. Nature of the business (cont.) The accompanying consolidated financial statements have been prepared on going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern. The Company expects its costs and expenses to increase as it continues to develop its product candidates and progress its current clinical programs and cost associated with being a public company. Pursuant to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date of these financial statements, and (1) is probable that the plan will be effectively implemented within one year after the date the financial statements are issued, and (2) it is probable that the plan, when implemented will mitigate the relevant condition or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financials are issued. Certain elements of the Company’s operating plan to alleviate the conditions that raise substantial doubt are outside of the Company’s control and cannot be included in management’s evaluation under the requirements of accounting Standard Codification (ASC) 205-40. Since inception, the Company has devoted substantially all its efforts to business planning, research and development, clinical expenses, recruiting management and technical staff, and securing funding via collaborations. The Company has historically funded its operations with proceeds received from its collaboration arrangements, sale of equity capital and proceeds from sales of convertible notes. The Company has incurred significant losses and has an accumulated deficit of $ 66.5 million as of December 31, 2021 (December 31, 2020 - $ 39.8 million (restated – Note 3)). Management expects to continue to generate operating losses in the foreseeable future, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. The Company plans to seek additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in these endeavors. If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate its research and development programs, or reduce product candidate expansion, which could adversely affect its business prospects. As of August 20, 2021, the issuance date of the financial statements for the year ended December 31, 2020, our cash which included the proceeds of our rights offering in June 2021 was insufficient to fund our current operating plan and planned capital expenditures for at least the next 12 months. As of May 16, 2022, our cash is insufficient to fund our current operating plan and planned capital expenditures for at least the next 12 months. These conditions give rise to a substantial doubt over the Company’s ability to continue as a going concern. Impact of Covid-19 on our Business In March 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a pandemic and recommended containment and mitigation measures worldwide. The COVID-19 pandemic has been evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. F- 11 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 1. Nature of the business (cont.) As a result of COVID-19, all the Company’s clinical trials were experiencing significant delays throughout the year ended December 31, 2020. The Company has been slowly ramping up its clinical trial sites in 2021. Management continues to closely monitor the impact of the COVID-19 pandemic on all aspects of the business, including how it will impact operations and the operations of customers, vendors, and business partners. The extent to which COVID-19 impacts the future business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, such as the continued duration of the outbreak, new information that may emerge concerning the severity or other strains of COVID-19 or the effectiveness of actions to contain COVID-19 or treat its impact, among others. If the Company or any of the third parties with which it engages, however, were to experience shutdowns or other business disruptions, the ability to conduct business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on business, results of operations and financial condition. The estimates of the impact on the Company’s business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national, and international markets. Management has not identified any events which would result in any significant impairment losses in the carrying values of assets because of the pandemic and are not aware of any specific related event or circumstance that would require management to revise estimates reflected in these consolidated financial statements. Impact of the Russia-Ukraine War There have been immense flows of refugees to Europe and Denmark is ready to facilitate and to accept refugees from the Ukraine. It is far too early to estimate how many migrants Denmark will facilitate, but immigration officials have begun preparing to accept Ukrainian refugees. Being a North Atlantic Treaty Organization (NATO) member, Denmark will strengthen its own national preparedness as well as that of the NATO defense alliance. The Ukraine crisis has not yet had an impact on our results of operations however we expect it may have an impact on the costs of materials we purchase for our laboratory operations in Denmark but, we cannot predict the impact at this point in time. Emerging Growth Companies Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has chosen to not make an election to opt out of new or revised accounting standards. 2. Summary of Significant Accounting Policies (a) Basis of Presentation The accompanying consolidated financial statements have been prepared on an accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). F- 12 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) As a result of the recapitalization share exchange (also described in Notes 1 and 4), to these financial statements, all outstanding shares, warrants, and options were exchanged on a 50:1 basis as of December 20, 2021, and accordingly, all share, warrant, option and per share disclosure in these financial statements has been retroactively adjusted to reflect the 50:1 reverse split unless otherwise stated. (b) Organization and Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Name Country of Incorporation Allarity Acquisition Subsidiary Inc. United States Allarity Therapeutics Europe ApS (formerly Oncology Venture Product Development ApS) Denmark Allarity Therapeutics Denmark ApS (formerly OV-SPV2 ApS) Denmark MPI Inc. United States Oncology Venture US Inc. United States All intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation. (c) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting years. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the fair value of the Series A preferred shares, warrants, convertible debt, and the accrual for research and development expenses, fair values of acquired intangible assets and impairment review of those assets, share based compensation expense, and income tax uncertainties and valuation allowances. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed considering reasonable changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known and if material, their effects are disclosed in the notes to the consolidated financial statements. Actual results could differ from those estimates or assumptions. F- 13 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (d) Foreign currency and currency translation The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. The Company and its subsidiaries operate mainly in Denmark and the United States. The functional currencies of the Company’s subsidiaries are their local currency. The Company’s reporting currency is the U.S. dollar. The Company translates the assets and liabilities of its Denmark subsidiaries into the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity as a component of accumulated other comprehensive (loss). Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate translations are included in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss as incurred. The Company recorded a foreign exchange (loss) gain of ($ 1,966 ) and $ 2,452 and a fair value adjustment to instrument specific credit risk of ($ 9 ) and $ 9 , included in accumulated other comprehensive loss for the years ended December 31, 2021, and 2020, respectively. (e) Concentrations of credit risk and of significant suppliers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash. The Company maintains its cash in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships. The Company has not experienced losses on its cash accounts and management believes, based upon the quality of the financial institutions, that the credit risk regarding these deposits is not significant. The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials. (f) Cash Cash consists primarily of highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents or restricted cash on December 31, 2021, and 2020. F- 14 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (g) Property, plant and equipment Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the estimated useful lives of the respective assets as follows: Estimated Useful Economic Life Leasehold property improvements Lesser of lease term or useful life Laboratory equipment 5 years Furniture and office equipment 3 years Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in loss from operations. As of December 31, 2021, and 2020, there have been no significant asset retirements to date. Expenditures for repairs and maintenance that do not improve or extend the lives of the respective assets are charged to expense as incurred. (h) Grants Grants are recognized when the conditions for receipt are met and there is reasonable assurance that the grant will be received. Grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Company with no future related costs are recognized in profit or loss in the period in which they become receivable. (i) Impairment of long-lived assets Long-lived assets consist of property, plant and equipment, and intangible assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. An impairment loss would be recognized as a loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group or the estimated return on investment are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flow or return on investment calculations. (j) Business Combinations Business combinations are accounted for in accordance with ASC Topic 805 “Business Combinations”. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. F- 15 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (k) Non-controlling interest These financial statements reflect the application of ASC 810, Consolidations, which establishes accounting and reporting standards that require: (i) the ownership interest in subsidiaries held by parties other than the parent to be clearly identified and presented in the consolidated balance sheet within stockholder’s (deficit) equity, but separate from the parent’s (deficit) equity; (ii) the amount of consolidated net income attributable to the parent and the non-controlling interest to be clearly identified and presented on the face of the consolidated statement of operations and (iii) changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary to be accounted for consistently. Our consolidated financial statements include all assets, liabilities, incidental service revenues, and expenses of less-than-100%-owned affiliates that we control or for which we are the primary beneficiary. We record a non-controlling interest for the allocable portion of income or loss and comprehensive income or loss to which the non-controlling interest holders are entitled based upon their ownership share of the affiliate. Distributions made to the holders of non-controlling interests are charged to the respective non-controlling interest balance. Losses attributable to the non-controlling interest in an affiliate may exceed our interest in the affiliate’s equity. The excess and any further losses attributable to the non-controlling interest shall be attributed to those interests. The non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance. As of December 31, 2021, and 2020, the Company had no non-controlling interests. (l) Acquired Patents Acquired patents are measured in the balance sheet at the lower of cost less accumulated amortization and impairment charges, if any. The legal costs incurred to renew or extend the term of the acquired patents are expensed as incurred. Cost comprises the acquisition price and the depreciation period are estimated at approximately 5 years with no residual value. Depreciation methods, useful lives and residual values are reviewed every year. (m) Acquired In-Process Research and Development (IPR&D) Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquired as part of a business combination and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned, or transferred to a third-party. Management assesses its acquired IPR&D for impairment at year end date as well as when events and circumstances indicate there is a potential impairment. Significant quantitative indicators considered are the Company’s market capitalization, market share, length of remaining clinical trials, and projected revenue per treatment. The projected discounted cash flow models used to estimate the fair value of partnered assets and cost approach model used to estimate proprietary assets as part of the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make to evaluate a drug development asset, including the following: ● Estimates of obsolescence of development expenditure; ● Probability of successfully completing clinical trials and obtaining regulatory approval; F- 16 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) ● Estimates of future cash flows from potential milestone payments and royalties related to out-licensed product sales; and ● A discount rate reflecting the Company’s weighted average cost of capital and specific risk inherent in the underlying assets. Once brought into use, intangible assets are amortized over their estimated useful economic lives using the economic consumption method if anticipated future revenues can be reasonably estimated. The straight-line method is used when revenues cannot be reasonably estimated. The Company has not recorded impairment losses on its intangible assets in either of the years ended December 31, 2021, or December 31, 2020. (n) Fair value measurements of financial instruments The carrying value of the Company’s financial instruments of cash, other current assets, accounts payable and accrued liabilities, approximate their fair value due to their short-term nature. The Company’s other financial instruments include an equity investment, preferred shares, convertible debt, and warrant derivative liabilities. The equity investment is adjusted to fair market value at the end of every period based upon unadjusted quoted prices. The convertible debt and derivative liabilities are fair valued at the end of every period using level 3 inputs. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: ● Level 1 — defined as observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. ● Level 2 — defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3 — defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. F- 17 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement. (o) Segment and geographic information Operating segments are defined as components of a business for which separate discrete financial information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and its chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manage its business as a single operating segment. The Company operates in two geographic areas: Denmark and the United States however, as of December 31, 2021 and 2020, the Company has neither revenues nor long-lived assets outside of Denmark. (p) Operating lease right-of-use assets The Company determines whether an arrangement contains a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and net of current portion of operating lease liabilities on our consolidated balance sheets. Lease ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments. The Company does not include options to extend or terminate the lease term unless it is reasonably certain that the Company will exercise any such options. Rent expense is recognized under the operating leases on a straight-line basis. The Company’s facilities operating leases have lease and non-lease components to which the Company has elected to apply a practical expedient to account for all components as one single component. The Company does not recognize right-of-use assets or lease liabilities for short-term leases, which have a lease term of twelve months or less, and instead will recognize lease payments as expense on a straight-line basis over the lease term. (q) Revenue recognition The Company’s revenues are generated primarily through research and development services provided to pharmaceutical and biotechnology companies. The terms of these arrangements may include (i) the grant of intellectual property rights (IP licenses) to therapeutic drug candidates against specified targets, (ii) performing research and development services to optimize drug candidates, and (iii) the grant of options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees. Research and development service revenue is recognized over time as services are rendered. Revenue generated from the grant of IP licenses is recognized when probable. The Company has adopted Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606—Revenue from Contracts with Customers (“ASC 606”). This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In determining the appropriate amount of revenue to be recognized under ASC 606, the Company performs the following steps: (i) identify the promised goods or services in the contract; (ii) determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; F- 18 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. (r) Milestone and royalty revenue recognition Milestone payments: At the inception of each arrangement that includes research and development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant cumulative revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Royalties: For arrangements that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements. (s) Research contract costs and accruals Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs and laboratory supplies, depreciation, amortization and impairment expense, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials. Typically, upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. As of the year ended December 31, 2021, the Company has recorded a milestone payment liability of $ 5,000 as an accrued liability. There were no milestone payments paid or due in the year ended December 31, 2020. F- 19 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) The Company has entered into various research and development contracts with companies in Europe, the United States, and other countries. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs. (t) Research and development incentives and receivable Denmark Tax Incentives Denmark allows loss making Companies the opportunity to apply for a payment equal to the tax value ( 22 %) of negative taxable income related to R&D costs. The negative taxable income is calculated on the total negative income of the companies participating in the joint taxation. Tax payment according to this rule cannot exceed an amount of DKK 5.5 million, corresponding to a tax loss relating to R&D expenditure of DKK 25 million. The tax credit is recorded as tax receivable and other income within research and development expenses. In the years ended December 31, 2021 and December 31, 2020 the Company recorded $ 875 and $ 908 in tax credits respectively, thereby reducing research and development expenses. European Agency Grants The Company, through its subsidiaries in Denmark, receives reimbursements of certain research and development expenditures as part of a European agency’s research and development cost reliefs program. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each period end, management estimates the reimbursement available to the Company based on available information at the time. The Company records these research and development expense reimbursements as a reduction to research and development expenses in the consolidated statements of operations and comprehensive loss, as the research and development cost reimbursements are not dependent on the Company generating future taxable income, the Company’s ongoing tax status, or tax position. The Company recognizes a receivable for the research and development incentives when the relevant expenditure has been incurred, the associated conditions have been satisfied and there is reasonable assurance that the reimbursement will be received. The Company has recorded government grants received as a reduction to research and development expense of $Nil and $ 22 for the years ended December 31, 2021, and 2020, respectively. (u) Investments In accordance with ASC 321, the Company’s investments in equity securities are measured at readily determinable fair value (“RDFV”) in the balance sheet with changes in fair value recognized in net loss. For investments in equity securities that are traded in an active market, RDFV is equivalent to the market value at the balance sheet date and changes in fair value are recognized in other income (expenses). Investments in equity securities are classified as either current or long-term depending upon management’s intentions. F- 20 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (v) Convertible debt instruments The Company follows ASC 480-10, Distinguishing Liabilities from Equity in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer’s equity shares; or (c) variations inversely related to changes in the fair value of the issuer’s equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported in change on fair value expense in the accompanying Statements of Operations. Additionally, the Company accounts for certain convertible debt (“Convertible Notes) issued under the fair value option election of ASC 825, Financial Instruments (“ASC 825”) wherein the financial instrument is initially measured at its issue-date estimated fair value and then subsequently re-measured at estimated fair value on a recurring basis at each reporting period date. The estimated fair value adjustment is recognized as other income (expense) in the accompanying consolidated statements of operations and the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive loss. Convertible Notes are settled with shares at fair value of the stock issued with any differences recorded to other income (expense), as a gain or (loss) on extinguishment. (w) Warrants When the Company issues warrants it evaluates the proper balance sheet classification to determine classification as either equity or as a derivative liability on the consolidated balance sheets. In accordance with ASC 815-40, Derivatives and Hedging-Contracts in the Entity’s Own Equity (ASC 815-40), the Company classifies a warrant as equity so long as it is “indexed to the Company’s equity” and several specific conditions for equity classification are met. A warrant is not considered indexed to the Company’s equity, in general, when it contains certain types of exercise contingencies or adjustments to exercise price. If a warrant is not indexed to the Company’s equity or it has net cash settlement that results in the warrants to be accounted for under ASC 480, Distinguishing Liabilities from Equity, or ASC 815-40, it is classified as a derivative liability which is carried on the consolidated balance sheet at fair value with any changes in its fair value recognized immediately in the statement of operations. As of December 31, 2021, and December 31, 2020, the Company had warrants outstanding for share-based compensation that were classified as equity, and outstanding investor warrants that were classified as derivative liabilities. (x) Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the Consolidated Statements of Operations and Comprehensive Loss each reporting period. Bifurcated embedded derivatives are classified as “Derivative liabilities” in the Consolidated Balance Sheets. F- 21 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (y) Share-based compensation The Company accounts for share-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company records the expense for option awards using either a graded or straight-line method. The Company accounts for forfeitures as they occur. For share-based awards granted to both employee and non-employee consultants, the measurement date for non-employee awards is the date of grant. The compensation expense is then recognized over the requisite service period, which is the vesting period of the respective award. The Company reviews all stock award modifications including when there is an exchange of original award for a new award. In the case of stock award modifications, the Company calculates for the incremental fair value based on the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. The Company immediately recognizes the incremental value as compensation cost for vested awards and recognizes, on a prospective basis over the remaining requisite service period, the sum of the incremental compensation cost and any remaining unrecognized compensation cost for the original award on the modification date. The fair value of stock options (“options”) on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option’s expected term and the price volatility of the underlying stock, to determine the fair value of the award. The Company applies the Black-Scholes model as it believes it is the most appropriate fair value method for all equity awards and for the Employee Share Purchase Plan (the “ESPP”). The Black-Scholes model requires several assumptions, of which the most significant are the share price, expected volatility and the expected award term. Expected term of options granted is calculated using the simplified method being the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasury bonds with equivalent terms. The Company classifies share-based compensation expense in its Consolidated Statements of Operations and Comprehensive Loss in the same way the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. (z) Accumulated other comprehensive loss Accumulated other comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation and instrument specific credit risk as components of other accumulated comprehensive loss in the Consolidated Statements of Operations and Comprehensive Loss. For the years ended December 31, 2021, and 2020, the Company’s other comprehensive loss was comprised of currency translation adjustments and fair value adjustments attributable to instrument specific credit risk. F- 22 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (aa) Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the Consolidated Statements of Operations and Comprehensive Loss. (bb) Income taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that will more likely than not be realized upon ultimate settlement. Any provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits that are considered appropriate. The Company recognizes interest and penalties related to uncertain tax positions in other (income) expenses. (cc) Computation of Loss per Share Basic net loss per common share is determined by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common stock and common stock equivalents outstanding for the period. The Company adjusts net loss to arrive at the net loss attributable to common stockholders to reflect the amount of dividends accumulated during the period on the Company’s redeemable convertible preferred stock, if any. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and warrants and the if-converted method is used to determine the dilutive effect of the Company’s redeemable convertible preferred stock and Convertible Notes. For the years ended December 31, 2021, and 2020, the Company had a net loss attributable to common stockholders, and as such, all outstanding stock options, shares of redeemable convertible preferred stock, and warrants were excluded from the calculation of diluted loss per share. Under the if-converted method, convertible instruments that are in the money, are assumed to have been converted as of the beginning of the period or when issued, if later. F- 23 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) (dd) Recently adopted accounting pronouncements In August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. ASU No. 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU No. 2020-06 is effective for public companies for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. The Company early adopted the provisions of ASU 2020-06 effective January 1, 2021, using the modified retrospective method for transition with no significant impact to its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12: Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or gain for other items, the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This ASU also includes other requirements related to franchise tax, goodwill as part of a business combination, consolidations, changes in tax laws, and affordable housing projects. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Early adoption is permitted for periods in which financial statements have not yet been issued. The Company adopted ASU 2019-12 as of January 1, 2021 and has not realized a material impact from the adoption of this new standard on its financial statements. (ee) Recently issued accounting pronouncements not yet adopted In May 2021, the FASB issued ASU No. 2021-04 — Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options — to clarify the accounting by issuers for modifications or exchanges of equity-classified written call options. The framework applies to freestanding written call options, such as warrants, that were and remain equity classified by the issuer after the modification and are not in the scope of another Codification Topic. The framework applies regardless of whether the modification is through an amendment to the existing terms or issuance of a replacement warrant. The effect of the modification of the warrant is measured as the difference in its fair value immediately before and after the modification. The effect is recognized in the same manner as if cash had been paid as consideration. Additionally, other modifications may need to be accounted for as a cost to the issuing entity based on the substance of the transaction. The Company is required to apply the amendments within this ASU prospectively to modifications or exchanges occurring on or after the effective date of the amendment. The Company adopted this ASU on January 1, 2022 with no significant impact on its consolidated financial statements and related disclosures. F- 24 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 2. Summary of Significant Accounting Policies (cont.) In November 2021, the FASB issued ASU 2021-10 — Government Assistance — Disclosures by Business Entities about Government Assistance — to require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The ASU is effective prospectively or retrospectively for annual periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. 3. Restatement of Previously Issued Audited Financial Statements The Company has restated its financial statements as of and for the year ended December 31, 2020, to correct the following errors: a) The Company identified a convertible promissory note that was previously unrecorded. The Company assumed this promissory note as part of the 2018 acquisition of Oncology Venture Product Development ApS (the “2018 Merger”). This promissory note (the “Note”) should have been recorded at fair value at the date of acquisition and accreted over time to its face value. To correct this error, the Company has made adjustments before tax to: 1) record the cumulative impact of accrued interest, accretion of the discount and a reduction of the bargain purchase gain booked at the time of the acquisition on accumulated losses of $ 699 , as an adjustment to the January 1, 2019 opening balance of accumulated losses on the statement of equity, 2) record an $ 88 adjustment to the January 1, 2020 opening balance of accumulated losses on the statement of equity to reflect accrued interest for the year ended December 31, 2019, 3) record the amortized cost of the Note of $ 880 as a non-current liability as of December 31, 2020, and 4) record the interest and accretion of $ 93 for the year ended December 31, 2020 (see Note 14). The restatement tax effect of the Note is included in b) below. b) The Company identified an error in the valuation allowance relating to its deferred tax assets as of December 31, 2020, and the income tax provision for the year ended December 31, 2020. In determining the valuation allowance in the previously issued financial statements, the Company assumed a reversal time frame for its most significant deferred tax liability related to IPR&D that was inconsistent with the classification of the IPR&D as indefinite-lived intangible assets. Consequently, an additional valuation allowance of $ 1,532 and $ 81 is necessary as of December 31, 2020 and 2019, respectively. To correct this error, the Company made adjustments to 1) record the cumulative impact of $ 81 as of January 1, 2020 as an increase in accumulated losses; 2) increase the valuation allowance as of December 31, 2020 by $1,532 , and 3) reduce the tax benefit for the year ended December 31, 2020 by $ 1,451 . c) The Company corrected certain classification matters related to the presentation of extinguishment of debt. In addition, the tax credit of $ 908 for the year ended December 31, 2020 was presented as a tax benefit in the income tax provision line. However, since it is not dependent on the generation of taxable income the presentation has been corrected to reflect the tax credit as a reduction of R&D expenses in the statement of operations. i. Balance sheet Impact of correction of errors at December 31, 2020 As previously reported Adjustments As restated Total assets $ 33,403 $ — $ 33,403 Total current liabilities 5,533 — 5,533 Convertible promissory note and accrued interest, net — 880 880 Deferred tax 603 1,532 2,135 Other 416 — 416 Total liabilities 6,552 2,412 8,964 Accumulated deficit ( 37,432 ) ( 2,412 ) ( 39,844 ) Additional paid-in capital 62,482 — 62,482 Others 1,801 — 1,801 Total stockholders’ equity 26,851 ( 2,412 ) 24,439 Total liabilities & stockholders’ equity $ 33,403 $ — $ 33,403 The Company’s opening accumulated deficit as of January 1, 2020 was corrected as follows: Total accumulated deficit, as previously reported at January 1, 2020 $ ( 32,374 ) Convertible promissory note and accrued interest, net ( 787 ) Deferred tax valuation allowance ( 81 ) Total accumulated deficit, as restated at January 1, 2020 $ ( 33,242 ) F- 25 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 3. Restatement of Previously Issued Audited Financial Statements (cont.) ii. Statement of operations Impact of correction of errors – year ended December 31, 2020 As previously reported Adjustments As restated Operating expenses Research and development $ 5,126 $ ( 908 ) $ 4,218 General and administrative 4,101 — 4,101 Loss from operations $ ( 9,227 ) $ ( 908 ) $ ( 8,319 ) Other income (expense) Interest expense ( 227 ) ( 93 ) ( 320 ) Loss on extinguishment of convertible debt — ( 108 ) ( 108 ) Change in fair value of convertible debt ( 681 ) 108 ( 573 ) Others 2,901 — 2,901 Other income 1,993 ( 93 ) 1,900 Net loss before income tax benefit ( 7,234 ) 815 ( 6,419 ) Income tax benefit (expense) 2,161 ( 2,359 ) ( 198 ) Net loss $ ( 5,073 ) $ ( 1,544 ) $ ( 6,617 ) Basic and Diluted (Loss) per Share $ ( 1.55 ) $ ( 0.47 ) $ ( 2.03 ) Weighted Average Shares Outstanding - Basic and Diluted 3,264,780 3,264,780 3,264,780 F- 26 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) iii. Statement of Cash Flows Impact of correction of errors – year ended December 31, 2020 As previously reported Adjustments As restated Loss for the period $ ( 5,073 ) $ ( 1,544 ) $ ( 6,617 ) Items not affecting cash: Non-cash interest 187 93 280 Fair value adjustment of convertible debt 681 ( 108 ) 573 Loss on extinguishment of convertible debt — 108 108 Current income taxes — 33 33 Deferred income taxes ( 1,286 ) 1,451 165 Tax credit receivable ( 71 ) ( 33 ) ( 104 ) Others ( 1,689 ) — ( 1,689 ) Net cash used in operating activities ( 7,251 ) — ( 7,251 ) Net cash used in investing activities ( 3 ) — ( 3 ) Net cash provided in financing activities 6,033 — 6,033 Net increase (decrease) in cash ( 1,221 ) — ( 1,221 ) Foreign exchange effect on cash ( 5 ) — ( 5 ) Cash beginning of period 1,524 — 1,524 Cash end of period $ 298 $ — 298 F- 27 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 4. Acquisition of the Assets and Liabilities of Allarity Therapeutics, A/S As discussed in Note 1, on December 20, 2021 (the “Closing Date”), Allarity Therapeutics, Inc., closed the acquisition of Allarity Therapeutics A/S’ assets and business for the aggregate purchase price of 8,075,824 shares of the Company’s common stock plus the assumption of specified liabilities (the “Reorganization”). Pursuant to the Plan of Reorganization and Asset Purchase Agreement (the “Reorganization Agreement”), the aggregate consideration paid to stockholders of Allarity Therapeutics A/S at the Closing Date consisted of 8,075,824 shares of Allarity Therapeutics, Inc. common stock, par value $ 0.0001 per share (“Common Stock”). At the effective time of the reorganization and subject to the terms and conditions of the Reorganization Agreement, each share of Allarity Therapeutics A/S common stock, par value SEK $ 0.05 per share that was convertible into a share of Allarity Therapeutics A/S at a one-to-one ratio pursuant to the Allarity Therapeutics A/S certificate of incorporation, was converted into common stock equal to the exchange ratio. In each case, these share amounts were rounded down to the nearest whole number on a holder-by-holder basis and any fractional interest will be settled in cash. The “exchange ratio” means the quotient of the number of Allarity A/S ordinary shares outstanding in Allarity A/S divided by fifty (50) or 0.02 shares of Delaware Common Stock for each Allarity A/S ordinary share issued and outstanding (as defined in the Reorganization Agreement), as of immediately prior to the effective time. At the effective time, each warrant (option) conferring the right to subscribe for Allarity A/S ordinary shares held by the officers, directors, employees and consultants (each, a “Compensatory Warrant”) that is outstanding immediately prior to the effective time, whether vested or unvested, was assumed by Allarity Delaware and converted into an option (each, a “Converted Option”) to purchase a number of shares of Common Stock equal to the product (rounded to the nearest whole number) of (a) the number of ordinary shares of Allarity A/S subject to such Compensatory Warrant immediately prior to the effective time multiplied by (b) the exchange ratio of 50 to 1, at an exercise price per share (rounded up to the nearest whole cent) equal to (i) the exercise price per share of such Compensatory Warrant immediately prior to the effective time divided by (ii) the exchange ratio and then converted into U.S. dollars. As part of the reorganization, the Company is responsible for the liquidation expenses of Allarity Therapeutics, A/S, which is estimated to be approximately $ 200 . 5. Other Current Assets The Company’s other current assets are comprised of the following: December 31, 2021 $ 2020 $ Deposits 53 68 Grant receivable — 50 Salary deposit 65 51 Value added tax (“VAT”) receivable 507 166 625 335 6. Prepaid Expenses December 31, 2021 $ 2020 $ Prepaid insurance 14 152 Other prepayments 22 22 36 174 F- 28 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 7. Investment The Company owns 43,898 common shares in Lantern Pharma Inc. because of a prior license agreement made with Lantern Pharma in 2017. During June 2020 Lantern Pharma became publicly listed. As at December 31, 2021 the fair market value of the shares was $ 350 . December 31, 2021 $ 2020 $ Opening balance 845 137 (Loss) gain recognition ( 495 ) 708 Ending balance 350 845 8. Property, plant, and equipment, net Property, plant, and equipment are recorded at historical cost, net of accumulated depreciation. Components of property, plant and equipment, net are summarized as follows (in thousands): As of December 31, 2021 $ 2020 $ Laboratory equipment 336 364 Less: accumulated depreciation ( 328 ) ( 343 ) 8 21 The Company’s property, plant and equipment was pledged as collateral to its line of credit loan as disclosed in Note 10. Depreciation expense was $ 12 and $ 21 for the years ended December 31, 2021, and 2020, respectively. 9. Operating lease right-of-use assets The facilities of the Company are leased under various operating lease agreements for periods ending no later than 2023. As of February 1, 2021, the Company entered into a new lease contract at its premises in Hoersholm, Denmark. Under the new lease contract, the leased premises were reduced by approximately 137 square meters and the contract period was reduced from an end date of December 31, 2023, to January 31, 2023, with an automatic 12 month renewal period after that date unless termination notice is given. The exercise of lease renewal options is at the Company’s sole discretion and is assessed as to whether to include any renewals in the lease term at inception. The new lease contract was treated as a modification to the existing lease contract, and we remeasured the lease liability to reflect the modified terms and recognized a corresponding reduction to the ROU asset in the amount of $ 145 . The following table summarizes the presentation in our consolidated balance sheets of our right of use assets: As of December 31, Balance sheet location 2021 2020 Assets: Operating lease assets $ 86 $ 331 Liabilities: Current operating lease liabilities $ 98 $ 109 Non-current operating lease liabilities 9 267 $ 107 $ 376 F- 29 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 9. Operating lease right-of-use assets (cont.) The weighted average remaining lease term and weighted average operating lease discount rate, for the years ended December 31, 2021, and 2020 are as follows: December 31, 2021 2020 Weighted average of remaining operating lease term (years) 2 3 Weighted average operating lease discount rate 10 % 10 % Future minimum lease payments under non-cancellable operating leases as at December 31, 2021, are as follows: 2022 $ 105 2023 9 114 Imputed interest ( 7 ) Total $ 107 Total lease costs and cash paid for the Company’s premises and virtual offices for the years ended December 31, 2021, and 2020 were $ 134 and $ 156 respectively. 10. Intangible assets Intangible assets, net of accumulated amortization, impairment charges and adjustments are summarized as follows: As of December 31, 2021 Cost Accumulated Impairment Accumulated Amortization Net IPR&D Assets $ 35,896 $ ( 7,761 ) — $ 28,135 Acquired patents 78 — ( 78 ) — Total intangible assets $ 35,974 $ ( 7,761 ) ( 78 ) $ 28,135 As of December 30, 2020 Cost Accumulated Impairment Accumulated Amortization Net IPR&D Assets $ 38,880 $ ( 8,403 ) — $ 30,477 Acquired patents 78 — ( 65 ) 14 Total intangible assets $ 38,958 $ ( 8,403 ) ( 65 ) $ 30,491 The Company’s IPR&D assets have been classified as indefinite-lived intangible assets. Individually material development projects in progress are as follows: December 31, 2021 $ 2020 $ Stenoparib 25,407 27,522 Dovitinib 2,728 2,955 Total 28,135 30,477 F- 30 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 11. Line of credit Effective July 1, 2016 the Company, through its former parent company, Allarity Therapeutics A/S, established a line of credit with Nordea Bank (the “Nordea Credit Line”) in the amount of $ 84 bearing interest at 8.75 % which was secured against the assets of Allarity Therapeutics A/S. As of December 20th, 2021, the Nordea Credit Line was repaid and concurrent with the Company’s reorganization on December 20 th , 2021, the line of credit is no longer accessible to the Company 12. Accrued liabilities The Company’s accrued liabilities are comprised of the following: December 31, 2021 $ 2020 $ Development cost liability (Notes 20(a) and 26) 6,750 1,191 Payroll accruals 1,088 316 Accrued Board member fees 54 119 Accrued audit and legal 316 84 Other 382 130 8,590 1,840 13. Loan 2021 Loan Effective March 22, 2021, the Company received a loan of up to $ 2,900 (SEK 25 million), net of a 3 % loan origination fee of $ 87 (SEK 750 thousand), recorded as finance costs in the consolidated statement of operations and comprehensive loss; bearing interest at 3 % per month, and due on June 23, 2021. In exchange for the loan, the Company committed to complete a rights offering and issue common shares. The rights offering was completed before June 23, 2021, as described in these financial statements. As of June 23, 2021, the loan balance of $ 2,934 and interest of $ 204 were paid to the lender. 2019 Loan Effective September 24, 2019, the Company received a loan of $ 512 bearing interest at 3 % per month and due on November 30, 2019. The lender agreed to extend the due date of the loan with no penalty and the balance of the loan, including interest of $ 62 was paid as of January 7, 2020. The loan agreement included the Company’s commitment to carry out a common share subscription which was cancelled upon repayment of the loan on January 7, 2020. F- 31 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 14. Convertible promissory note and accrued interest, net On April 12, 2022, Allarity Therapeutics Denmark ApS (“Allarity Denmark,” or “OV-SPV2”), a subsidiary of Allarity Therapeutics Europe ApS (“Allarity Europe”), which is a wholly-owned subsidiary of Allarity Therapeutics, Inc., re-issued a Convertible Promissory Note (the “Promissory Note”) to Novartis Pharma AG, a company organized under the laws of Switzerland (“Novartis,” and together with Allarity Europe, the “License Parties”) in the principal amount of $ 1,000 . The Promissory Note was re-issued pursuant to the First Amendment to License Agreement, with an effective date of March 30, 2022 (the “First Amendment”), entered into by and between the License Parties, which amended the License Agreement dated April 6, 2018 (the “Original Agreement”) previously entered into by the License Parties relating to the Compound (as defined in the Original Agreement). The First Amendment amends and restates Section 11.7 of the Original Agreement to add the revised Note to the list of enforceable claims in the second paragraph of Section 11.7 making the revised Note enforceable under New York law as a legal obligation of Allarity Denmark (f/k/a OV-SPV2 ApS). All other provisions of the Original Agreement and Promissory Note were unchanged and remain in full force and effect. Prior to the 2018 Merger, on April 6, 2018 (“Effective Date”), Allarity Europe and Novartis entered a license agreement whereby Novartis granted to Allarity Europe (a) an exclusive, royalty-bearing, sublicensable, assignable license under the Licensed Data (as defined in the License Agreement) and Product-Specific Patents (as defined in the License Agreement) and (b) a non-exclusive, royalty-bearing, sublicensable, assignable license under the Platform Patents (as defined in the License Agreement), in the case of (a) and (b) solely to develop and otherwise commercialize the Licensed Product (as defined in the License Agreement) in any and all field related to therapeutic and/or diagnostic uses related to cancer in humans worldwide and to manufacture the compound TKI258 (a.k.a. Dovitinib) for use in a Licensed Product as of the Effective Date. In consideration of the licenses and rights granted, Allarity Europe paid Novartis a one-time, non-refundable, non-creditable upfront payment consisting of $ 1,000 (“Upfront Payment”) and issued to Novartis a Promissory Note with an initial principal balance equal to $ 1,000 , which Allarity Europe caused its affiliate, OV-SPV2, to issue to Novartis. In accordance with the terms of the Promissory Note, all payments shall be applied first to accrued interest, and thereafter to principal. The outstanding principal amount of the Note, plus any accrued interest thereon, shall be due and payable on the earlier to occur of: (i) the seventh (7th) anniversary of April 6, 2018; and (ii) an event of default (the “Maturity Date”). F- 32 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 14. Convertible promissory note and accrued interest, net (cont.) The Promissory Note pays simple interest on the outstanding principal amount from the date until payment in full, which interest shall be payable at the rate of five percent ( 5 %) per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The entire outstanding principal balance of the Promissory Note and all accrued interest shall be fully due and payable on the Maturity Date. The Promissory Note is convertible upon an initial public offering (“IPO”) of OV-SPV2 and allows Novartis a one-time right to exchange the Convertible Promissory Note for such number of equity securities of OV-SPV2 equal to three percent ( 3 %) of OV-SPV2 outstanding equity securities, calculated on a fully diluted as-converted to common stock basis, held by all holders of equity securities of OV-SPV2 immediately prior to the closing of the IPO. As the Promissory Note was assumed in connection with the 2018 Merger, the Company recognized the Promissory Note and related accrued interest at its fair value. The Company utilized a third-party valuation specialist to estimate the fair value of the Promissory Note and related accrued interest. Based on the specialist’s valuation, the Company recognized the Promissory Note and related accrued interest at its estimated fair value, based upon an equivalent market interest rate of 12.875 %, of approximately $ 787 on December 31, 2019, and recognized interest expense of $ 93 and $ 99 in the years ended December 31, 2020 and December 31, 2021 respectively and a corresponding increase in liability, resulting in a net liability of $ 979 and $ 880 at each of December 31, 2021 and December 31, 2020 respectively. The Company will measure the Note at amortized cost in subsequent reporting periods. The Company evaluated the Promissory Note under ASC 480 and ASC 815 and the identified embedded features inclusive of: (1) conversion upon an IPO; (2) mandatory redemption upon a change of control; and (3) mandatory redemption in the event of default; to determine if bifurcation is required pursuant to ASC 815-15-25-1. The Promissory Note is considered to be a freestanding instrument that is convertible into shares of the OV-SPV2 ApS’ common (or preferred, as the case may be) equity. The Promissory Note was not issued in conjunction with any other instrument meaning that the Promissory Note meets the definition of a freestanding instrument. Since the conversion feature meets the definition of a derivative it was evaluated for bifurcation and management determined the conversion feature requires bifurcation but because the value is not material the conversion feature has not been bifurcated at this time. The Company will continue to monitor for changes in specific facts and circumstances which may impact the conclusions reached herein. During the years ended December 31, 2021 and 2020, the Company recorded $ 99 and $ 93 respectively to interest expense and increased the convertible promissory note liability by the same amount. The roll forward of the Promissory Notes as of December 31, 2021, and December 31, 2020, is as follows: December 31, 2021 $ December 31, 2020 (Restated) $ Convertible promissory note 1,000 1,000 Less debt discount, opening ( 263 ) ( 306 ) Plus, accretion of debt discount, interest expense 48 43 Convertible promissory note, net of discount 785 737 Interest accretion, opening 143 92 Interest accretion, expense 51 51 Ending balance 979 880 F- 33 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 15. Convertible debt On March 31, 2020, the Company, through its former parent company, Allarity Therapeutics A/S, entered into a twenty-four-month term agreement to issue up to $ 10,100 (SEK 100,000 ) to be funded in tranches of ten non-interest-bearing notes (“Notes”) convertible into new shares of the Company, each with a value of $ 1,010 (SEK 10,000 ), under the following terms: a) Fees payable include 5% of the $10,100 Commitment in 2 equal installments of $252, paid on the disbursement of each of the first and second Tranches; and a further 5% of the principal of the notes is to be deducted from the payment of each Tranche. b) The loan is due for repayment in full 12 months from the date of issuance; or immediately repayable in the event of default, a change of control or a material adverse event. The Investor may in its sole discretion decide to convert the Loan in full or in part (in multiples of $4 (SEK 25) in 1,000’s) into new shares. c) The Conversion Price of the Notes is 95% of the lowest closing volume weighted average price as reported by Bloomberg (“VWAP”) of the shares during the applicable pricing period preceding the conversion date. Conversion of the Loan Amount shall be made at a rate equal to the Conversion Price. The Conversion Price cannot be below par value. The number of new Shares issued by the Company to the Investor upon conversion of the Loan Amount shall be calculated as the Loan Amount divided by the Conversion Price. If the Conversion Price is equal to or less than $0.01 (0.05 DKK), the Investor will not be required to convert such Note. If the Investor (contrary to the clear intention in the Agreement) claims repayment of one or more Tranches and not to convert into Shares the Company shall be entitled to deduct the commitment fee in connection with the repayment. d) Default interest accrues on the overdue amount from the due date up to the date of actual payment at 8% per annum; calculated on a 360 day year and accrues and compounds on a daily basis. Prior to the Company’s share offering in June of 2021 the Company had issued and converted a total of four of the Notes, leaving six Notes available however, pursuant to the Company’s agreement with its June Rights Issue investors, this loan agreement was no longer utilized after the end of June 30, 2021. The Company accounted for the Notes issued under the fair value election whereby the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting date. The estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying consolidated statements of operations under the caption change in fair value of convertible notes and derivative liabilities. We determined the fair value of the Notes using a discounted cash flow valuation technique with a weighted average cost of capital of 15 %. The Company estimates the change in fair value attributable to the instrument specific credit risk of the Notes at 1 % under the fair value option and accordingly has recognized a (recovery) loss of $( 9 ) and $ 9 in other comprehensive income during the years ended December 31, 2021, and December 31, 2020, respectively. Changes in fair value of convertible debt of ($ 474 ) and ($ 573 ) related to the Notes have been recognized in the Company’s statement of operations for the years ended December 31, 2021, and December 31, 2020, respectively. And a loss on extinguishment of convertible debt of $ 141 and $ 108 has been recognized in the Company’s Consolidated Statement of Operations and Comprehensive loss in the years ended December 31, 2021, and December 31, 2020, respectively. F- 34 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 15. Convertible debt (cont.) The roll forward of the Notes as of December 31, 2021, and December 31, 2020, is as follows: December 31, 2021 $ December 31, 2020 (Restated) $ Opening fair value 1,327 — Convertible debt issued in the period 1,140 3,416 Change in fair value 474 573 Foreign exchange ( 116 ) — Conversion of notes to common shares ( 2,825 ) ( 2,662 ) Ending fair value balance — 1,327 An effective interest rate determines the fair value of the Notes. The notes are unlisted and therefore, they are categorized as Level 3 in accordance with ASC 820, “Fair Value Measurements and Disclosures.” The notes were fully converted to shares as of June 30, 2021, and, concurrent with the Company’s reorganization on December 20 th , 2021, is no longer accessible to the Company. 16. Series A Preferred Stock and Common Stock Purchase Warrants (a) Series A Preferred Stock Terms On May 20, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with 3i, LP, a Delaware limited partnership (“3i”) for the purchase and sale of 20,000 shares of our Series A Convertible Preferred Stock (the “Preferred Shares”) for $ 1,000 per share for an aggregate purchase price of $ 20 million (the “PIPE Investment”) with accompanying common stock purchase warrants (the “3i Warrants”). On December 8, 2021, the Board adopted resolutions to create a series of twenty thousand ( 20,000 ) shares of preferred stock, par value $ 0.0001 , designated as “Series A Convertible Preferred Stock.” On December 14, 2021, we filed a Certificate of Designations (the “COD”) setting forth the rights, preferences, privileges and restrictions for 20,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). On December 20, 2021, we issued 20,000 shares of Preferred Stock at $1,000 per share and a common stock purchase warrant to purchase 2,018,958 shares of common stock at an initial exercise price of $9.9061 to 3i, LP for an aggregate purchase price of $20 million. F- 35 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 16. Series A Preferred Stock and Common Stock Purchase Warrants (cont.) Except to the extent that the holders of at least a majority of the outstanding Series A Preferred Stock (the “Required Holders”) expressly consent to the creation of Parity Stock (as defined below) or Senior Preferred Stock (as defined below), all shares of capital stock are junior in rank to all Series A Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (such junior stock is referred to herein collectively as “Junior Stock”). The rights of all such shares of capital stock of the Company will be subject to the rights, powers, preferences and privileges of the Series A Preferred Stock. Without limiting any other provision of this COD, without the prior express consent of the Required Holders, voting separate as a single class, the Company will not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Series A Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “Senior Preferred Stock”), (ii) of pari passu rank to the Series A Preferred Stock in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the “Parity Stock”) or (iii) any Junior Stock having a maturity date or any other date requiring redemption or repayment of such shares of Junior Stock that is prior to the first anniversary of the December 20, 2021. In the event of the merger or consolidation of the Company with or into another corporation, the Series A Preferred Stock will maintain their relative rights, powers, designations, privileges and preferences provided for herein and no such merger or consolidation will result inconsistent therewith. The Series A Preferred Stock has a liquidation preference equal to an amount per Series A Preferred Stock equal to the sum of (i) the Black Scholes Value (as defined in the Warrants, which was sold concurrent with the Series A Preferred Stock) with respect to the outstanding portion of all Warrants held by such holder (without regard to any limitations on the exercise thereof) as of the date of such event and (ii) the greater of (A) 125% of the Conversion Amount of such Series A Preferred Stock on the date of such payment and (B) the amount per share such holder would receive if such holder converted such Series A Preferred Stock into common stock immediately prior to the date of such payment, and will be entitled to convert into shares of common stock at an initial fixed conversion price of $9.9061 per share, subject to a beneficial ownership limitation of 4.99% which can be adjusted to a beneficial ownership limitation of 9.99% upon sixty-one (61) days’ prior written notice. Under the terms of the COD, the initial fixed conversion price of the Series A Preferred Stock is $ 9.9061 , subject to adjustment. In the event that (i) the average of the VWAP of the Company’s shares for each of the five (5) trading days immediately preceding the date of delivery is less than the fixed conversion price of $9.9061 (a “Price Failure”), or (ii) the sum of (x) the aggregate daily dollar trading volume (as reported on Bloomberg) of our common stock on Nasdaq during the ten (10) trading day period ending on the trading day immediately preceding such date of determination, divided by (y) ten (10), is less than $1,500,000 (a (“Volume Maximum Failure”), each share of Series A Preferred Stock is entitled to convert at a price equal to 90% of the sum of the two (2) lowest VWAPs during the ten (10) trading day period immediately preceding the date of delivery divided by two (2) (the “90% Conversion Price”), but not less than the Floor Price (as defined in the COD), or, at the time of such Price Failure or Volume Maximum Failure, the sum of the average daily U.S. Dollar volume for our common stock during the ten (10) days previous to conversion divided by ten (10) is less than $2 million then each share of Series A Preferred Stock is entitled to convert at the lower of the fixed conversion price or a price equal to 80% of the sum of the two (2) lowest VWAPs during the ten (10) trading day period immediately preceding delivery divided by two (2) (the “80% Conversion Price”), but not less than the Floor Price (such 80% Conversion Price or 90% Conversion Price, as the case may be, the “Alternate Conversion Price”). In addition, the COD provides for an adjustment to the conversion price and exercise of the Warrant in the event of a “new issuance” of our common stock, or common stock equivalents, at a price less than the applicable conversion price of the Series A Preferred Stock or exercise price of the Warrant. The adjustment is a “full ratchet” adjustment in the conversion price of the Series A Preferred Stock equal to the lower of the new issuance price or the then existing conversion price of the Series A Preferred Stock with few exceptions. Furthermore, if we fail to maintain an adequate number of authorized and unissued shares of our common stock in reserve and we are unable to deliver shares or our common stock upon conversion of the Preferred Stock, we may be required to redeem the shares we were unable to deliver at a price equal to the highest closing price of our common stock during the time between the failure to deliver shares of our common stock and the redemption date. F- 36 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 16. Series A Preferred Stock and Common Stock Purchase Warrants (cont.) If certain defined “triggering events” defined in the COD occur, such as a breach of the Registration Rights Agreement (specifically the Company’s Form S-1 as filed on SEC Edgar on September 13, 2021 and subsequently amended), suspension of trading, or our failure to convert the Series A Preferred Stock into common stock when a conversion right is exercised, failure to issue our common stock when the Warrant is exercised, failure to declare and pay to any holder any dividend on any dividend date, or upon a “bankruptcy triggering event” (as defined in the COD), then we may be required to redeem the Series A Preferred Stock for cash in the amount of up to a minimum of 125% of their Conversion Amount (as defined in the COD). In addition, if thirty (30) days after our common stock commences trading on the Nasdaq Stock Market the sum of the average daily dollar volume for the ten (10) days previous to conversion divided by ten (10) is less than $ 2.5 million, then the Series A Preferred Stock will be entitled to a one-time dividend equal to an 8 % increase in the stated value of the Series A Preferred Stock, or an $ 80 dollar increase per share in stated value, resulting in a stated value of $ 1,080 (one thousand and eighty dollars) per Series A Preferred Stock. Additionally, if any of the triggering events are not addressed on a timely basis, we could be liable to pay and 18 % per annum dividend. On April 29, 2022, the Company experienced a triggering event as defined in the COD. See Note 27(e), Subsequent Events. In the event that the Company experiences a “Change of Control” (as defined in the COD), the Company may also be required to redeem the Preferred Shares for cash at a minimum of 125 % of their Conversion Amount. Holders of Series A Preferred Stock will have no voting rights, except as required by law and as expressly provided in the COD. On December 21, 2021, 3i exercised its option to convert 200 shares of Series A Preferred Stock for 20,190 shares of our common stock. As of December 31, 2021, we had 19,800 shares of Series A Preferred Stock issued and outstanding. F- 37 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 16. Series A Preferred Stock and Common Stock Purchase Warrants (cont.) (b) 3i Warrant Terms Concurrently with the issuance of our Preferred Stock, the Company issued warrants to purchase 2,018,958 shares of the Company’s common stock at an exercise price of $ 9.9061 per share, subject to adjustments (“3i Warrants”). The material terms of the 3i Warrants are as follows: (i) The warrants have and term of three years and expire on December 20, 2024; (ii) The exercise of the warrants are subject to a beneficial ownership limitation of 4.99% which can be adjusted to a beneficial ownership limitation of 9.99% upon sixty-one (61) days’ prior written notice ; (iii) The exercise price and the number of 3i Warrant shares issuable upon the exercise of the 3i Warrants are subject to adjustment, as follows: o In the event of a stock dividend, stock split or stock combination recapitalization or other similar transaction involving the Company’s common stock the exercise price will be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event; o If the Company sells or issues any shares of common stock, options, or convertible securities at an exercise price less than a price equal to the Warrant exercise price in effect immediately prior to such sale (a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the exercise price then in effect shall be reduced to an amount equal to the new issuance price; o Simultaneously with any adjustment to the exercise price, the number of 3i Warrant shares that may be purchased upon exercise of the 3i Warrant shall be increased or decreased proportionately, so that after such adjustment the aggregate exercise price payable hereunder for the adjusted number of 3i Warrant shares shall be the same as the aggregate exercise price in effect immediately prior to such adjustment (without regard to any limitations on exercise) and; o Voluntary adjustment for the Company to any amount and for any period deemed appropriate by the board of directors of the Company. (iv) In the event of either the Company consolidating or merging with or into another entity (the “Fundamental Transaction”), the sale or assignment of substantially all of the Company’s subsidiaries, or a Triggering Event (as defined in the COD), the holder is entitled to require the Company to pay the holder an amount in cash equal to the Black-Scholes value of the 3i Warrants on or prior to the later of the second trading after the date of request for payment and the date of consummation of the Fundamental Transaction; or at any time after the occurrence of the Triggering Event. (c) Accounting i. Series A Convertible Preferred Stock The Company evaluated the Series A Convertible Preferred Stock under ASC 480-10 to determine whether it represents an obligation that would require the Company to classify the instrument as a liability and determined that the Series A Convertible Preferred Stock is not a liability pursuant to ASC 480-10. Management then evaluated the instrument pursuant to ASC 815 and determined that because the holders of the Series A Convertible Preferred Stock may be entitled to receive cash, the Series A Convertible Preferred stock should be recorded as mezzanine equity given the cash redemption right that is within the holder’s control. Generally, preferred stock that are currently redeemable should be adjusted to their redemption amount at each balance sheet date. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company recognizes changes in redemption value when redemption becomes probable to occur. ii. 3i Warrants The 3i Warrants were identified as a freestanding financial instrument and are within the scope of ASC 480-10. Liability-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are recognized through earnings for as long as the contracts continue to be classified as a liability. The measurement of fair value is determined utilizing an appropriate valuation model taking into account all relevant assumptions current at the date of issuance and at each reporting period (i.e., share price, exercise price, term, volatility, risk-free rate and expected dividend rate. F- 38 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 16. Series A Preferred Stock and Common Stock Purchase Warrants (cont.) On December 21, 2021, when 3i exercised its option to convert 200 shares of Series A Preferred Stock for 20,190 shares of our common stock, the Company determined the fair value was unchanged from the December 20, 2021 fair value, and accordingly reclassified $ 74 from the Series A Preferred Stock Conversion feature to additional paid-in capital. As of December 31, 2021, the Company recognized a fair value remeasurement adjustment of the carrying amount resulting in a $ 154 decrease in fair value of the derivative liability and a corresponding change in fair value of derivative liability. Management further evaluated the financial instrument and all identified features pursuant to ASC 815 and concluded the Warrants would be classified as a liability and subsequently measured at fair value in future reporting periods. Accordingly, a residual fair value method has been applied with respect to the allocation of proceeds between the Preferred Stock and the Warrants. On the issuance date, the Company utilized a Monte Carlo simulation model to estimate the fair value of the Warrants to be approximately $ 11.3 million, using the following inputs: December 20, 2021 Initial exercise price $ 9.91 Stock price on valuation date $ 10.50 Risk-free rate 0.91 % Expected life of the Warrant to convert (years) 3 Rounded annual volatility 73.0 % Timing of liquidity event Q3 2022 – Q2 2023 Expected probability of event 90 % Probability of dilutive financing (Down-round) 8.0 % Given the relative short time between the issuance date (i.e., December 20, 2021) and the Company’s year-end reporting period (i.e., December 31, 2021), the Company believes there is no material change in the estimated fair value of the Warrants. The accounting for the Series A Convertible Preferred Stock and Warrants is illustrated in the table below: Warrant liability Series A Preferred Derivative Liability* Series A Convertible Preferred Stock – Mezzanine Equity Common Stock Additional paid-in capital Finance Costs Statement of Operations & Comprehensive Loss – Loss (gain) on change in fair value Subscription proceeds received on December 20, 2021 $ 11,273 $ 7,409 $ 1,318 $ — $ — $ — $ — Costs allocated ( 877 ) — ( 679 ) — — — Costs expensed 877 — — — — 877 — December 21, 2021 conversion of 200 Series A Preferred Stock — ( 74 ) ( 7 ) 2 80 — — Fair value adjustment at December 31, 2021 — ( 154 ) — — — — ( 154 ) Balances at December 31, 2021 $ 11,273 $ 7,181 $ 632 $ 2 $ 80 $ 877 $ ( 154 ) * Valuation of the Series A Preferred Derivative Liability is discussed in Note 17(a). F- 39 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 17. Derivative Liabilities (a) Series A Preferred Stock Conversion Feature The derivative scope exception under ASC 815 is not met because a settlement contingency is not indexed to the Company’s stock. Therefore, the redemption feature (derivative liability) has been bifurcated from the Series A Preferred Stock and recorded as a derivative liability. The derivative value of the Series A Preferred Stock Redemption Feature (the “Redemption Feature”) is the difference between the fair value of the Series A Preferred Stock with the Redemption Feature and the Series A Preferred Stock without the Redemption Feature. The Series A Preferred Stock Redemption Feature has been valued with a Monte Carlo Simulation model, using the following inputs: December 21, 2021 December 31, 2021 Base case conversion price $ 9.91 $ 9.91 Stock price on valuation date $ 10.50 $ 10.37 Risk-free rate 0.91 % 0.96 % Time to exercise (years) 3.00 2.97 Equity volatility 72.5 % 70 % Probability of volume failure 94 % 92 % Rounded 10 day average daily volume (in 1,000’s) $ 735 $ 908 On December 21, 2021, 200 Series A Convertible Preferred shares were converted to 20,190 shares of the Company’s common stock and $ 7 and $ 74 respectively were reclassified from Series A Convertible Preferred Stock and derivative liabilities to equity. As of December 31, 2021, the Company recognized a $ 154 fair value adjustment to Series A Preferred Stock derivative liability. Accordingly, as at December 31, 2021, the Series A Preferred Stock Redemption Feature is valued at $ 7,181 . (b) Investor Warrants The exercise price of our investor warrants which were issued by Allarity Therapeutics A/S, described below is denominated in SEK; however, the functional currency of Allarity A/S is DKK. Consequently, the value of the proceeds on exercise is not fixed and will vary based on foreign exchange rate movements. The investor warrants when issued other than as compensation for goods and services are therefore a derivative for accounting purposes and are required to be recognized as a derivative liability and measured at fair value at each reporting period. Any changes in fair value from period to period are recorded as non-cash gain or loss in the Consolidated Statements of Operations and Comprehensive Loss. Upon exercise, the holders pay the Company the respective exercise price for each investor warrant exercised in exchange for one common share of the Company and the fair value at the date of exercise and the associated non-cash liability will be reclassified to share capital. The non-cash liability associated with any investor warrants that expires unexercised is recorded as a gain in the consolidated statements of comprehensive loss. There are no circumstances in which the Company would be required to pay any cash upon exercise or expiry of the investor warrants. F- 40 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 17. Derivative Liabilities (cont.) In connection with subscriptions of units in the rights issues carried out: i. April/May 2019, 403,324 investor warrants (“TO1 warrants”) were granted to investors in connection with subscription of Offer Units in the rights issued carried out April/May 2019. All Warrants were vested as of the grant date. A warrant gives the right, during a fixed period to subscribe for one common share in the Company for $ 45 per share. All TO1 warrants expired unexercised in the period ended December 31, 2020; ii. October — December 2019, 1,006,822 investor warrants (“TO2 warrants”) were granted to investors. All Warrants were vested as of the grant date. A warrant gives the right, during a fixed period to subscribe for one common share in the Company for $ 34.50 per common share. The final exercise period for the warrants of series TO2 took place from September 1 up to and including September 15, 2021. Any TO2 warrants unexercised after September 13, 2021, expired without compensation or payment of any kind to the warrant holders. During the year ended December 31, 2021, a total of 176 warrants of series TO2 were exercised for total proceeds of $ 6 ; and iii. in June 2021, 2,417,824 investor warrants (“TO3 warrants”) were granted to investors and 482,250 TO3 warrants have been granted to underwriters. All TO3 warrants were vested as of the grant date and were exercisable for $ 10 per common shares. In accordance with the terms of the Company’s outstanding TO3 Warrants, on August 26, 2021, the Company’s Board of Directors set an extraordinary and final exercise period for the Company’s TO3 Warrants, starting on August 30, 2021, and ending on September 13, 2021. Any TO3 warrants unexercised after September 13, 2021, expired without compensation or payment of any kind to the warrant holders. During the year ended December 31, 2021, 274,386 warrants of series TO3 were exercised for total proceeds of $2,679 and the balance expired unexercised on September 13, 2021. The table below summarizes the number of investor warrants that were outstanding, their weighted average exercise price as of December 31, as well as the movements during the year. 2021 2020 Number Weighted Average Exercise Price $ Number Weighted Average Exercise Price $ Outstanding at January 1 1,086,759 $ 36.0 1,410,146 35.0 Granted 2,900,074 $ 10.0 79,937 $ 18.0 Exercised ( 274,562 ) 10.0 — — Expired ( 3,712,271 ) $ 17.0 ( 403,324 ) 41.0 Outstanding at December 31 — $ — 1,086,759 $ 36.0 Exercisable at December 31 — $ — 1,086,759 $ 36.0 F- 41 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 17. Derivative Liabilities (cont.) (c) Financing Facility Effective November 29, 2018, the Company established a convertible debt facility (the “Facility”) for funding of up to SEK 200 million to be funded in up to 20 tranches of SEK 10 million each over a 24-month term and bearing interest at 2 % per annum. Five of the tranches receivable under the Facility were at the discretion of the investor and the Facility was convertible into shares and warrants at 50 % of the nominal amount of the notes. The Company evaluated the terms of the Financing Facility in accordance with ASC 815-40-15 and ASC 815-40-25 and determined that the instrument is a derivative. Accordingly, the accounting treatment is the same as that described for Investor Warrants in Note 17(b) above. On June 3, 2019, the Company settled one of the five tranches with a cash payment of $ 673 and in February 2020 the balance of the committed tranches was settled by receipt of $ 1,000 from the investor in cash, in exchange for a subscription of 186,600 common shares in the Company (Settlement Shares) valued at $ 2,500 and the issuance of 79,937 investor warrants (Settlement Warrants) valued at $ 625 as of the February 23, 2020, grant date. All Settlement Warrants immediately vested on the grant date, were exercisable at $ 20 per common share and expired unexercised as of December 12, 2021. (d) Valuation of Derivative Liabilities The derivative liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following tables: T01 Warrants T02 Warrants T03 Warrants 3i Fund Series A Redemption Feature Settlement Warrants for the termination of the Financing Facility Warrants issued May 2019 Warrants issued December 2019 Warrants issued June 2021 Issued December 20, 2021 December 31, 2021 $ December 31, 2020 $ December 31, 2020 $ December 31, 2021 $ December 31, 2020 $ December 31, 2021 $ December 31, 2021 $ Balance beginning 102 2,138 14 47 1,641 — — Issued during the period — — — — — 2,000 7,409 Change in fair value ( 94 ) ( 524 ) ( 14 ) ( 45 ) ( 1,594 ) ( 1,794 ) ( 154 ) Amount transferred to Equity — ( 1,412 ) — — — ( 206 ) ( 74 ) Translation effect ( 8 ) ( 100 ) — ( 2 ) — — — Balance – end of period — 102 — — 47 — 7,181 Fair value per warrant / Series A Preferred share issuable at period end — 0.026 — — 0.001 — $ 363.0 F- 42 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 17. Derivative Liabilities (cont.) The fair value of the Company’s TO3 warrant liabilities, which all expired as of September 13, 2021, were estimated based upon Monte Carlo simulations under different market conditions, as scheduled below, resulting in a probability weighted value of the TO3 warrants of $ 2,000 at June 24, 2021 at the grant date. And warrants exercised on September 13, 2021, were re-valued at $ 206 using a Black-Scholes model with the assumptions noted below. June 24, 2021 September 13, 2021 Exercise price $ 10.05 $ 9.86 Stock price $ 5.50 $ 10.61 Risk-free interest ( 0.55 )% ( 0.50 )% Expected dividend yield ( 0 )% ( 0 )% Contractual life (years) 1.81 0.04 Expected volatility 106.5 % 104 % The fair value of the Company’s Settlement Warrant derivative liabilities, which all expired as of December 31, 2021, were estimated initially and on a quarterly basis using the Black-Scholes option pricing model and based on the following assumptions: Settlement Warrants for the termination of the Financing Facility TO2 Warrants December 31, 2020 Grant date February 23, 2020 December 31, 2020 Exercise price $ 20.0 – (SEK 165.0 ) $ 17.0 – (SEK 375.0 ) 36.5 – (SEK 300.0 ) Share price $ 5.0 – (SEK 40.0 ) $ 13.5 – (SEK 130.5 ) 5.0 – (SEK 40.0 ) Risk-free interest ( 0.41 )% ( 0.38 )% ( 0.57 )% Expected dividend yield ( 0 )% ( 0 )% ( 0 )% Contractual life (years) 2.17 3.00 0.71 Expected volatility 106.50 % 104.10 % 106.50 % 18. Stockholders’ Equity (a) Stockholders’ Equity i. Capital structure As a result of the recapitalization share exchange described in Notes 1 and 4, to these financial statements, all outstanding shares, warrants and options were exchanged on a 50:1 basis as of December 20, 2021, and accordingly, all share, warrant, option and per share disclosure in these financial statements has been retroactively adjusted to reflect the 50:1 reverse split unless otherwise stated. Our authorized capital stock consists of 30,000,000 shares of common stock, par value $ 0.0001 per share, and 500,000 shares of preferred stock, par value $ 0.0001 per share, of which 20,000 shares of preferred stock, has been designated Series A Convertible Preferred Stock. Our Certificate of Incorporation authorizes our board of directors to establish one or more series of preferred stock (including convertible preferred stock). Our board of directors may determine, with respect to any series of preferred stock, the powers including preferences and relative participations, optional or other special rights, and the qualifications, limitations, or restrictions thereof, of that series. F- 43 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 18. Stockholders’ Equity (cont.) As of December 31, 2021, and 2020 respectively the Company’s total issued, and outstanding common shares were 8,096,014 and 4,252,021 respectively with a par value $ 0.0001 . The shares are fully paid in. The shares are not divided into classes, and no shares enjoy special rights. ii. Share issuances During the year ended December 31, 2021, the Company recorded a total of $2,475 in share issuance costs and issued: (a) 295,537 common shares valued at $2,972 upon the exercise of common stock purchase warrants and the receipt of $2,765 in cash; (b) Units consisting of 2,417,824 common shares and 2,417,824 common share purchase warrants for $5 per unit; valued at $12,125 in exchange for $12,125 in cash, and 482,250 common shares and 482,250 common share purchase units valued at $2,384 in consideration for services. The attached warrants are exercisable for $10 each with an original expiration date of April 15, 2023, subsequently amended to September 13, 2021 (Note 17(b) iii); (c) 628,192 common shares valued at $2,880 upon conversion of debt and payment of accounts payable; and (d) 20,190 common shares valued at $82 upon the conversion of $200 in Series A Preferred shares. During the year ended December 31, 2020, the Company issued: (a) 361,359 common shares in exchange for $2,869 in cash and recognized $652 in share issuance costs; (b) 186,600 common shares and 79,937 warrants in exchange for $1,092 in cash in settlement of the Financing Facility dated February 23, 2020; the fair value of the common shares of $2,504 was recorded in equity and the $625 fair value of the warrants was recorded as a derivative liability which was adjusted to market at the end of every period; as at December 31, 2021, the warrants have expired unexercised; (c) 510,933 common shares valued at $3,002 on conversion of debt; (d) 518,732 common shares valued at $3,906 in exchange for 37% of the NCI in Allarity Therapeutics Denmark ApS; and (e) 247,675 common shares valued at $2,029 in exchange for 16.09% of the NCI in OV US Inc. F- 44 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 18. Stockholders’ Equity (cont.) (b) Non-controlling interests There were no non-controlling interests in the year ended December 31, 2021. The following provides a reconciliation of the beginning and ending balances of the Company’s non-controlling interests in Allarity Therapeutics Denmark ApS (formerly OV-SPV2 ApS) and OV US Inc. for the year ended December 31, 2020: (US$ in thousands) Allarity Therapeutics Denmark ApS Non-controlling Interest OV US Inc. Non-controlling interest Total Non-controlling Interest Balance at December 31, 2019 2,042 774 2,816 Acquisition of 37 % of Allarity Therapeutics Denmark ApS for shares(see (d) above) ( 2,103 ) — ( 2,103 ) Acquisition of 16.09 % of OV US Inc. for shares (see (e) above) — ( 758 ) ( 758 ) Income (loss) for 2020 17 ( 32 ) ( 15 ) Foreign currency translation 44 16 60 Balance at December 31, 2020 $ — $ — $ — 19. Share-based payments Share based payments in the legal form of stock options (“options”) and/or warrants have been granted to members of the executive management, members of the board of directors, employees, and external consultants. 2021 Equity Incentive Plan Our 2021 Equity Incentive Plan became effective on December 20, 2021. It was approved by shareholders in connection with the Recapitalization Share Exchange. Our 2021 Plan authorizes the award of stock options, Restricted Stock Awards (“RSAs”), Stock Appreciation Rights (“SARs”), Restricted Stock Units (“RSUs”), cash awards, performance awards and stock bonus awards. We have initially reserved 1,211,374 shares of our common stock under the 2021 Plan. The number of shares reserved for issuance under our 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the number of shares equal to the lesser of 5 % of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31, or a number as may be determined by our board of directors. On November 24, 2021, the Board of Directors approved an equity-settled stock option plan which provides employees, officers, and directors an option to purchase a total of 869,828 common shares of the Company at prices of between $ 5.19 and $ 10.17 . Employee warrants were granted with 25 % vesting upon grant and the 75 % balance vesting over 36 months until November 24, 2024, provided they remain within the Company’s employment. Director warrants were granted with a vesting period of 48 months. Vested warrants are exercisable over a fixed period from grant date up to and including November 23, 2027. F- 45 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 19. Share-based payments (cont.) Additional Executive Plan Effective September 15, 2019, the Company established an option compensation plan to grant the CEO a right to subscribe a total of two percent of the then outstanding shares of the Company on a fully diluted basis upon completion of twenty-four months of continuous employment. A total of 156,025 options were granted effective September 15, 2021 and became fully vested on that date. The options have been valued at $ 1,004 with the Black-Scholes model using an expected volatility of 97.88 %; expected life of 5 years; risk free interest rate of ( 0.46 %); an expected dividend yield of 0 %; and an exercise price of $ 8.75 . Warrant plan #7 On December 18, 2020, the Board of Directors approved an equity-settled stock option plan which provides an employee and a member of the executive management of the Group with the option to purchase 67,791 common shares of the Company at market price on the date of grant. Warrants were granted with monthly vesting over 36 months until September 1, 2022, respectively October 1, 2023, provided they remain within the Company’s employment. During the year ended December 31, 2021, the vesting terms were accelerated and upon the Company’s listing on Nasdaq the options of the member of executive management became fully vested. Accordingly, a total of 28,191 options exercisable at $ 13.30 per share became completely vested as of December 20, 2021. Vested options are exercisable over a fixed period of 10 years from grant date. Warrant plan #6 In October 2019, the Board of Directors approved an equity-settled stock option plan which provides board of directors and members of the executive management of the Company the option to purchase 112,764 common shares of the Company at market price on the date of grant. During 2020, a total of 27,017 of the options were forfeited on the termination of a member of executive management. Options were granted with a three-year vesting term, providing non-termination of employment. During the year ended December 31, 2021, the vesting terms were accelerated and upon the Company’s listing on Nasdaq the balance of 70,477 of the options exercisable at $ 12.09 became fully vested as of December 20, 2021. Vested options are exercisable over a fixed period of 10 years from grant date. Warrant plan #5 On February 24, 2017, the Board of Directors approved an equity-settled stock option plan which provides board of directors and members of the executive management of the Group with the option to purchase 13,924 common shares of the Company at market price on the date of grant. Warrants were granted with either immediate vesting, or monthly vesting over 36 months until July 1, 2019, provided the recipient remains within the Group’s employment. Vested warrants are exercisable over a fixed period from grant date up to and including July 1, 2021. Warrant plan #4 On February 18, 2016, the Board of Directors approved an equity-settled stock option plan, which provides key management personnel with the option to purchase 12,676 common shares of the Company at market price on the date of grant. Warrants were granted with monthly vesting over 36 months from July 1, 2016, until July 1, 2019, provided the recipient remains within the Group’s employment. Vested warrants are exercisable over a fixed period from grant date up to and including July 1, 2021. Warrant plan #3 On December 17, 2014, the Board of Directors approved an equity-settled stock option plan, which provides key management personnel and with the option to purchase 570,000 common shares of the Company at market price on the date of grant. Warrants were granted with 50 % immediately vesting upon grant, 25 % vesting on December 17, 2015, and 25 % vesting on July 3, 2016, provided the recipient remains within the Group’s employment. Vested warrants are exercisable over a fixed period from grant date up to and including July 1, 2021. F- 46 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 19. Share-based payments (cont.) Warrant plans #1 - #6 and 2021 Stock Option Plan Effective July 1, 2021, a total of 45,805 previously issued and outstanding options expired unexercised. All share-based payment warrants and stock option plans During 2021, the total charge to profit or loss amounted to $ 6,368 (2020: $ 616 ) of which $ 4,203 (2020: $ 616 ) are recognized as general and administrative expenses and $ 2,165 is recognized as research and development expenses. As of December 31, 2021, total unrecognized compensation cost relating to unvested options granted was $ 4,526 and is expected to be realized over a period of 2.6 years. The Company will issue shares upon exercise of options from shares reserved under the plans. The table below summarizes the number of options that were outstanding, their weighted average exercise price and contractual term as of December 31, as well as the movements during the period. Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term $ (in years) Balance on January 1, 2020 174,345 $ 9.0 — Granted 67,791 11.0 — Forfeited ( 27,016 ) 13.0 — Outstanding as of December 31, 2020 215,119 10.0 9.3 Granted 1,026,653 6.2 — Exercised ( 20,976 ) 3.0 — Forfeited ( 45,805 ) 3.1 — Outstanding as of December 31, 2021 1,174,992 $ 6.8 4.91 Options exercisable at December 31, 2021 568,500 $ 8.0 4.76 The intrinsic value of options outstanding at December 31, 2021 and 2020 was $ 4,149 and $ 0 respectively. The intrinsic value of exercisable options at December 31, 2021 and 2020 was $ 1,484 and $ 0 respectively. A total of 45,805 and 27,016 stock options were forfeited in the years ended December 31, 2021, and December 31, 2020, respectively. No options expired in the years ended December 31, 2021, or December 31, 2020. The weighted average share price at the date of exercise of stock options in 2021 was $ 39 . The intrinsic value of all exercised stock options in 2021 was $ 418 . The exercise price for options outstanding at the end of 2021 is $ 5.19 – $ 13.30 (2020: $ 4.5 – $ 15 ). The weighted average grant date fair value of options granted in 2021 was $ 6.2 (2020: $ 6 ) per share. The total fair value of options vested during the years December 31, 2021, and 2020 was $ 4,223 and $ 616 respectively. F- 47 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 19. Share-based payments (cont.) The estimate of the grant date fair value of each option issued is based on a Black Scholes model. The assumptions used in our valuations are summarized as follows: For the Years ended December 31, 2021 2020 Expected volatility 80.6 % - 97.9 % 80.6 % Weighted average share price $ 6.63 $ 7.0 Expected life (in years) 5 - 9.8 10 – 11 Expected dividend yield 0 % 0 % Risk-free interest rate ( 0.45 )% - ( 0.46 ) % ( 0.41 )% Expected Term — The expected term is based upon the historical exercise patterns of options. Expected volatility — Was determined based upon the expected term of the options which is based upon the historical exercise patterns of options. Risk-Free Interest Rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the options’ expected term. Dividend Rate — The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future. Fair Value of Common Stock — The quoted prices of the Company’s common stock is used to estimate the fair value of the share-based awards at grant date. 20. License and Development Agreements a) License Agreement with Novartis Pharma for Dovitinib We hold the exclusive worldwide rights to all therapeutic and/or diagnostic uses related to cancer in humans for dovitinib from Novartis Pharma AG (“Novartis”) pursuant to a license agreement. Pursuant to the agreement, we are solely responsible for the development of dovitinib during the term of the agreement. Development Milestone Payments Pursuant to the agreement, we have agreed to make milestone payments to Novartis in connection with the development of dovitinib by us or our affiliates, or by a third-party (a “Program Acquirer”) that assumes control of the dovitinib development program from us corresponding to: (i) upon enrollment of half of the patients required in a Phase 2 clinical trials in certain countries in accordance with agreed upon protocols; (ii) Upon dosing of the first patient in the first Phase 3 clinical trial; (iii) upon submission of the first NDA with the FDA; (iv) submission of an MAA to the EMA or any other Regulatory Authority in certain countries; (v) upon receipt of the first authorization by the FDA to market and sell a licensed product; and (vi) upon receipt of a MAA (including a respective pricing and reimbursement approval) for a licensed product in one or more specified European countries. If all milestones have been achieved, we may be obligated to pay Novartis up to a maximum of $ 26 million. As of December 31, 2021, we have accrued a milestone payment of $ 5 million in current liabilities and included $ 5 million in our research and development expenses in the year ended December 31, 2021. F- 48 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 20. License and Development Agreements (cont.) Royalty Payments In addition to the milestone payments described above, we have agreed to pay Novartis royalties based on annual incremental sales of product derived from dovitinib in an amount between five percent ( 5 %) and ten percent ( 10 %) of annual sales of between $ 0 and $ 250 million, between six percent ( 6 %) and thirteen percent ( 13 %) of annual sales between $ 250 million and $ 500 million, between seven percent ( 7 %) and thirteen percent ( 13 %) of annual sales between $ 500 million and $ 750 million, and between thirteen percent ( 13 %) and fifteen percent ( 15 %) of annual sales in excess of $ 750 million. We are obligated to pay royalties under the agreement on a country-by-country and product-by-product basis for a period that commences with the first commercial sale of a product until the later of (i) the expiration of the last to expire valid claim of any licensed patent covering such licensed product in such country; or, (ii) the expiration of regulatory-based exclusivity for such licensed product in such country or (iii) the ten (10) year anniversary of the date of first commercial sale of such licensed product in such country. However, the agreement may be sooner terminated without cause by us upon 120 days prior written notice, or upon written notice of a material breach of the agreement by Novartis that is not cured within 30 days. Novartis also has the right to terminate the agreement upon written notice of a material breach of the agreement by us that is not cured within 30 days or if we file for bankruptcy. b) License Agreement with Eisai for Stenoparib We hold the exclusive worldwide rights to all preventative, therapeutic and/or diagnostic uses related to cancer in humans and by amendment to the agreement on December 11, 2020, viral infections in humans (including, but not limited to, coronaviruses) for stenoparib from Eisai, Inc. (“Eisai”) pursuant to a license agreement. Pursuant to the license agreement, we are solely responsible for the development of stenoparib during the term of the agreement. The agreement also provides for a joint development committee consisting of six (6) members, three (3) appointed by us and three (3) appointed by Eisai. One of our members of the joint development committee is designated chair of the committee and has the power to break any deadlock in decisions by the committee that must be made by a majority vote with each representative having one (1) vote. The purpose of the committee is to implement and oversee development activities for stenoparib pursuant to the clinical development plan, serves as a forum for exchanging data, information and development strategy. Development Milestone Payments Pursuant to the agreement, we have agreed to make milestone payments to Eisai in connection with the development of stenoparib by us or our affiliates, or by a third-party Program Acquirer that assumes control of the stenoparib development program from us corresponding to: (i) successful completion of a Phase 2 clinical trial; (ii) Upon dosing of the first patient in the first Phase 3 clinical trial; (iii) upon submission of the first NDA with the FDA; (iv) submission of an MAA to the EMA; (v) submission of an NDA to the MHLW in Japan; (vi) upon receipt of authorization by the FDA to market and sell a licensed product; (vii) upon receipt of approval of an MAA by the EMA for a licensed product; and (viii) upon receipt of approval by the MHLW in Japan for a licensed product. If all milestones have been achieved, we may be obligated to pay Eisai up to a maximum of $ 94 million. In addition, we have agreed to pay Eisai a one-time sales milestone payment in the amount of $ 50 million the first time our annual sales of licensed product is $ 1 billion or more. F- 49 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 20. License and Development Agreements (cont.) Royalty Payments In addition to the milestone payments described above, we have agreed to pay Eisai royalties based on annual incremental sales of product derived from stenoparib in an amount between five percent ( 5 %) and ten percent ( 10 %) of annual sales of between $ 0 and $ 100 million, between six percent ( 6 %) and ten percent ( 10 %) of annual sales between $ 100 million and $ 250 million, between seven percent ( 7 %) and eleven percent ( 11 %) of annual sales between $ 250 million and $ 500 million, and between eleven percent ( 11 %) and fifteen percent ( 15 %) of annual sales in excess of $ 500 million. We are obligated to pay royalties under the agreement on a country-by-country and product-by-product basis for a period that commences with the first commercial sale of a product until the later of (i) the expiration of the last to expire valid claim of any licensed patent covering such licensed product in such country; or, (ii) the expiration of regulatory-based exclusivity for such licensed product in such country or (iii) the fifteen (15) year anniversary of the date of first commercial sale of such licensed product in such country. However, the agreement may be sooner terminated without cause by us upon 120 days prior written notice, or upon written notice of a material breach of the agreement by Eisai that is not cured within 90 days (30 days for a payment default). Eisai also has the right to terminate the agreement upon written notice of a material breach of the agreement by us that is not cured within 90 days (30 days for a payment default) or if we file for bankruptcy. By an amendment effective as of August 3, 2021, and executed by Eisai on August 23, 2021, Eisai also has the right to terminate the agreement if we do not complete a Phase 2 clinical trial before December 31, 2022, unless we elect to pay a $ 1,000 (one million dollar) extension payment (“Extension Payment”). Notwithstanding the foregoing, in the event we fail to enroll and dose at least thirty (30) patients with the first dose of cancer drug in the ongoing Phase 2 Ovarian Cancer Clinical Trial by July 1, 2022 then the Extension Payment will be due and payable in fully by July 30, 2022. In addition, if we fail to achieve successful completion of first Phase 2 Clinical Trial prior to December 31, 2022, and do not elect to pay the Extension Payment then Eisai may terminate the agreement in its sole discretion pursuant to the terms of the amendment. Option to Reacquire Rights to Stenoparib For the period commencing with enrollment of the first five (5) patients in a Phase 2 clinical trial pursuant to the clinical development plan and ending ninety (90) days following successful completion of such Phase 2 clinical trial, Eisai has the option to reacquire our licensed rights to develop stenoparib for a purchase price equal to the fair market value of our rights, giving effect to the stage of development of stenoparib that we have completed under the agreement. We commenced a Phase 2 clinical trial April 15, 2019, and as of the date of these consolidated financial statements, Eisai has not indicated an intention to exercise its repurchase option. c) Development, Option and License Agreement with R-Pharm for IXEMPRA ® On March 1, 2019, the Company entered into an option to in-license the rights to any and all therapeutic and/or diagnostic uses in humans for IXEMPRA ® in the European Union (Great Britain but excluding Switzerland and Lichtenstein) (the “Territory”) from R-Pharm U.S. Operating, LLC (“R-Pharm”), pursuant to a Development, Option and License Agreement (the “Option”). By an amendment to the agreement dated June 15, 2021, for no consideration, the term of the option will expire on September 1, 2022, if not exercised by us before then. The agreement provides a right of extension, should we elect, for an additional $ 250 thousand. As a condition to the exercise of the Option, we are required to offer R-Pharm a right to re-acquire the licensed rights from us on terms to be mutually agreed upon, including the payment to us of the fair market value of the licensed rights. Pursuant to the Option, we are solely responsible for the development of IXEMPRA ® during the term of the Option within the Territory. The agreement also provides for a joint development committee consisting of four (4) members, two (2) appointed by us and two (2) appointed by R-Pharm. Decisions by the committee that must be made by a unanimous consent of the parties, with us having the tie breaking vote on matters involving our DRP Biomarker, patient selection in the mBC clinical trial and the commercialization plan and R-Pharm having the tie breaking vote on all other matters. The purpose of the committee is to implement and oversee development activities for IXEMPRA ® pursuant to the clinical development plan, serves as a forum for exchanging data, information, and development strategy. F- 50 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 20. License and Development Agreements (cont.) Development Milestone Payments Pursuant to the agreement, once we have exercised the Option, we have agreed to make milestone payments to R-Pharm in connection with the development of IXEMPRA ® by us or our affiliates, or by a third-party Program Acquirer that assumes control of the IXEMPRA ® development program from us corresponding to: (i) upon receipt of regulatory approval for the Product for the treatment of the first indication in the first country in the Territory; and (ii) upon receipt of regulatory approval for the Product for the treatment of each additional indication in the first country in the Territory for each such additional indication. If all milestones have been achieved, and assuming only one additional indication in the second milestone is achieved, we may be obligated to pay R-Pharm up to a maximum of $ 12.5 million. Royalty Payments In addition to the milestone payments described above, once we have exercised the Option, we have agreed to pay R-Pharm royalties based on annual incremental sales of product derived from IXEMPRA ® in an amount between five percent ( 5 %) and eight percent ( 8 %) of annual sales of between $ 0 and $ 30 million, and between eight percent ( 8 %) and twelve percent ( 12 %) of annual sales over $ 30 million. After the Option is exercised, we would be obligated to pay royalties under the agreement on a country-by-country and product-by-product basis for a period that commences with the first commercial sale of a product until the later of (i) the expiration of the last to expire valid claim of any licensed patent covering such licensed product in such country; or, (ii) the expiration of regulatory-based exclusivity for such licensed product in such country or (iii) the seven (7) year anniversary of the date of first commercial sale of such licensed product in such country. However, the agreement may be sooner terminated without cause by us upon 90 days prior written notice, or upon written notice of a material breach of the agreement by R-Pharm that is not cured within 90 days (30 days for a payment default). R-Pharm also has the right to terminate the agreement upon written notice of a material breach of the agreement by us that is not cured within 90 days (30 days for a payment default) or in the event that we file for bankruptcy. d) Development costs and Out-License Agreement with Smerud In June of 2020 (the “June 2020 Out-License Agreement”), as amended March 28, 2022 (the “Amended License Agreement”), the Company out-licensed its secondary LiPlaCis ® and 2X-111 programs to Smerud Medical Research International, the Company’s long-time CRO partner in Europe, for further Phase 2 clinical development of each program together with its DRP ® companion diagnostic. Pursuant to the terms of the Amended License Agreement, Chosa ApS, a company organized under the laws of Denmark (“Chosa”), replaced us as the exclusive licensee to the LiPlaCis ® technology. In addition, we also granted Chosa an exclusive, royalty-free, transferable and sublicensable license for (i) our DRP ® Companion Diagnostics that are specific for Cisplatin or LiPlaCis ® (a liposomal formulation of Cisplatin) for the research and development of LiPlaCis ® products, and (ii) the use of any and all know-how and intellectual property rights owned by us for Chosa’s use of our DRP ® Companion Diagnostics that are specific for Cisplatin or LiPlaCis ® (a liposomal formulation of Cisplatin) for the development and commercialization of LiPlaCis ® products, as contemplated in the Amended License Agreement. F- 51 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 20. License and Development Agreements (cont.) LiPlaCis Support Agreement with Smerud, Chosa and LiPlasome On March 28, 2022, concurrent with the entry into the Amended License Agreement, we entered into the LiPlaCis Support Agreement with Allarity Europe, Smerud, Chosa and LiPlasome (the “Support Agreement”). Pursuant to the terms of the Support Agreement, we agreed (i) to pay to LiPlasome a certain percentage of the Commercialization Proceeds received from Smerud by way of debt cancellation relating to prior work on LiPlaCis ® by Smerud, which obligation was to be satisfied by the payment of USD $338 thousand (2,273 thousand DKK) to LiPlasome upon execution of the Support Agreement, (ii) to equally share the milestone payments under the terms of the License Agreement, pursuant to which it was contemplated that upon the achievement of all the milestones, our pro rata share of the Milestone Payments would be up to $3.5 million, (iii) to amend and restate the Original License Agreement, and (iv) to terminate the 2020 Sublicense Agreement as contemplated by the parties pursuant to the terms of the Support Agreement. Development costs Under the terms of the June 2020 Out-License agreement, the Company is liable for development costs of Smerud Medical Research International (“Smerud”) in the approximate amount of $ 1,264 (one million two hundred and sixty-four thousand) which has been accrued as of December 31, 2021 and is payable as Smerud was unable to identify investors to fund development of in-licensed products from the Company by December 31, 2021. Subsequent to December 31, 2021 and pursuant to the terms of the March 28, 2022 Amended License Agreement, the $ 1,264 thousand liability was forgiven in exchange for a payment to LiPlasome. Consequently, as at March 31, 2022, the Company recognized a gain on debt forgiveness of $ 926 thousand and recorded a balance due to LiPlasome of $ 338 thousand ( 2,273 thousand DKK), which was paid on April 1, 2022. However, notwithstanding the termination of the out-license agreement, we are currently engaged in discussions with Smerud in connection with the further development of 2X-111. Development Milestone Payments Pursuant to the Amended License Agreement, we are entitled to receive certain milestone payments from Chosa relating to the development and commercialization of LiPlaCis ® upon the occurrence of the following events, which milestone payments are to be shared with LiPlasome: (i) upon the regulatory approval of a product in the United States, (ii) upon the regulatory approval of a product in any country in Europe, including on a centralized filing basis by the EMA, (iii) upon the first achievement on a cumulative basis of net sales of a product in the United States, and (iv) upon the first achievement on a cumulative basis of net sales of a product in any country in Europe. Each milestone payment is payable one time only, regardless of the number of times the corresponding milestone event is achieved by a product and regardless of the number of products to achieve such milestone event. If all milestones are achieved, then we would be entitled to receive up to $3.5 million in milestone payments under the Amended License Agreement (“Milestone Payments”). As a result of the Amended License Agreement, we no longer have any rights to use or commercialize LiPlaCis ® and are only entitled to receive the Milestone Payments upon the achievement of the respective milestones. F- 52 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 20. License and Development Agreements (cont.) e) Sale of Irofulven On July 23, 2021, the Company, and Lantern Pharma Inc. (“Lantern”) entered into an exclusive agreement under which Lantern will reacquire global rights to Irofulven (“LP-100”) and assume full authority to manage and guide future clinical development and commercialization for $2 million. The Company received an upfront payment of $1 million from Lantern in the year ended December 31, 2021, and Lantern is withholding $1 million in escrow with applicable amounts to be released upon the achievement of certain agreed targets as described in Note 27(c). The agreement voids all prior obligations from the original 2015 in-license agreement and provides for additional development and regulatory milestone fees, and tiered royalties on future sales of Irofulven. If all milestones are achieved, then we will be entitled to receive up to $ 16 million in milestone payments under the Asset Purchase Agreement. In addition to the milestone payments, Lantern Pharma has agreed to pay us royalties in the low mid-digits based on annual incremental net sales of product derived from Irofulven, on a country-by-country basis, in an amount equal to percentages of annual sales based on a tiered progression. 21. Tax The reconciliation of the statutory rate to the effective tax rate is as follows: Reconciliation of effective tax rate: 2021 $ 2020 (Restated) $ Tax computed on the loss before tax at a tax rate of ( 21.0 % and 22.0 % for the years ended December 31, 2021 and 2020 respectively) ( 5,568 ) ( 1,412 ) Foreign rate differential ( 210 ) 4 Non-deductible expenses, share-based payments 523 135 Non-deductible expenses, other 905 151 Tax value of derivative warrants ( 438 ) ( 491 ) Special tax deduction on research and development expenses ( 464 ) ( 323 ) Loss offset to research and development incentive 682 708 Other adjustments 60 ( 123 ) Adjustment of tax concerning previous years 134 3 Change in valuation allowance 4,322 1,546 Transaction costs 187 — Effective tax rate 133 198 The components of income (loss) before income taxes were as follows: Year ended December 31, (in $1,000’s) 2021 $ 2020 (Restated) $ Denmark ( 21,250 ) ( 6,188 ) Sweden ( 11 ) ( 4 ) United States ( 5,254 ) ( 227 ) ( 26,515 ) ( 6,419 ) F- 53 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 21. Tax (cont.) The components of the provision for income taxes from operations were as follows: Year ended December 31, (in $1,000’s) 2021 $ 2020 (Restated) $ Current: Denmark — — Sweden 44 30 United States 69 3 Total 113 33 Deferred: Denmark 20 165 Sweden — — United States — — Total 20 165 133 198 Deferred tax comprises: 2021 $ 2020 (Restated) $ Property, plant and equipment 21 21 Intangible assets ( 5,198 ) ( 5,648 ) Stock compensation 815 — Other accruals ( 47 ) ( 57 ) Net operating losses 9,095 6,158 Total deferred tax 4,686 474 Valuation allowance ( 6,647 ) ( 2,609 ) Net deferred tax liabilities ( 1,961 ) ( 2,135 ) Tax on profit/loss for the year: 2021 $ 2020 ( Restated) $ Current income tax 88 33 Change in deferred tax 20 165 Adjustment of tax concerning previous years 25 — Tax received under the tax credit scheme — — Tax expense 133 198 Tax losses carried forward of approximately $ 41.6 million can be carried forward indefinitely. Deferred tax has been provided corresponding to the statutory tax rate applied. The statute of limitations for re-assessment of tax returns in Denmark is three years and five years for transfer pricing. As of December 31, 2021, the Company’s December 31, 2017 through 2020 tax years remain open and the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authorities. F- 54 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 22. Related parties Transactions with related parties During the year ended December 31, 2021, a member of the Company’s Board of Directors participated in the June 2021 rights offering and purchased a total of 11,336 shares for $ 84 . During the year ended December 31, 2020, the Company’s former CEO and certain of his family members provided research and development and investor relations services to the Company and were compensated in the amount of $ 156 . Acquisition of NCI On June 8, 2020, the Company issued 518,732 shares in the Company at a value of $ 3,906 to Sass Larsen, an entity with significant influence over the Company in exchange for the purchase of the remaining 37 % interest in Allarity Therapeutics Denmark ApS (formerly OV SPV2 ApS). On July 13, 2020, the Company acquired the remaining ownership ( 16.09 %) in Oncology Venture US Inc. for 247,675 common shares valued at $ 2,029 out of which Sass Larsen was issued 65,625 common shares in the Company valued at $ 538 , and Marie Foegh, our executive officer, received 3,988 ordinary shares valued at $ 33 . 23. Segment information The Company is domiciled in the United States of America and its operations are in Denmark and operates as one operating segment. Our Chief Executive Officer (CEO), as the chief operating decision-maker, manages and allocates resources to the operations of our Company on a total Company basis. Managing and allocating resources on a total company basis enables our CEO to assess the overall level of resources available and how to best deploy these resources across functions, therapeutic areas and research and development projects that are in line with our long-term company-wide strategic goals. Consistent with this decision-making process, our CEO uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future period financial results, allocating resources, and setting incentive targets. The Company has neither revenues from external customers outside Denmark, nor long-term assets in geographical areas other than Denmark. 24. Basic and diluted net loss per share Basic and diluted net loss per share attributable to common shareholders was as follows: Years Ended December 31, 2021 2020 (Restated) Numerator: Net loss attributable to common shareholders $ ( 26,648 ) $ ( 6,617 ) Denominator: Weighted average common shares outstanding – basic and diluted 6,358,988 3,264,780 Net loss per share attributable to common shareholders – basic and diluted $ ( 4.19 ) $ ( 2.03 ) F- 55 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 24. Basic and diluted net loss per share (cont.) The Company’s potentially dilutive securities, which include warrants and shares issuable upon conversion of convertible debt, have been excluded from the computation of diluted net loss per share attributable to common shareholders as the effect would be to reduce the net loss per share attributable to common shareholders. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect: As of December 31, 2021 2020 Warrants and stock options 3,193,950 1,301,878 Series A Convertible Preferred stock 1,997,982 — Convertible debt — 19,204 5,191,932 1,321,082 25. Financial Instruments The following tables present information about the Company’s financial instruments measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values: Fair Value Measurements as of December 31, 2021 Using: Level 1 Level 2 Level 3 Total Assets: Investment $ 350 $ — $ — $ 350 Liabilities: Warrant liability $ — $ — $ ( 11,273 ) $ ( 11,273 ) Series A Convertible Preferred Stock Redemption Feature — — ( 7,181 ) ( 7,181 ) $ — $ — $ ( 18,454 ) $ ( 18,454 ) Fair Value Measurements as of December 31, 2020 Using: Level 1 Level 2 Level 3 Total Assets: Investment $ 845 $ — $ — $ 845 Liabilities: Convertible debt $ — $ — $ ( 1,327 ) $ ( 1,327 ) Financing Facility — — ( 102 ) ( 102 ) Derivative warrants — — ( 47 ) ( 47 ) $ — $ — $ ( 1,476 ) $ ( 1,476 ) F- 56 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 25. Financial Instruments (cont.) Methods used to estimate the fair values of our financial instruments, not disclosed elsewhere in these financial statements, are as follows: When available, our marketable securities are valued using quoted prices for identical instruments in active markets. If we are unable to value our marketable securities using quoted prices for identical instruments in active markets, we value our investments using broker reports that utilize quoted market prices for comparable instruments. Accordingly, our investment is considered a Level 1 financial asset. We have no financial assets or liabilities measured using Level 2 inputs. Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility and market price of the underlying common stock of the Company. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the date the actual event or change in circumstances that caused the transfer occurs. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. There were no transfers between level 1 or level 2 during the year ended December 31, 2021. During the year ended December 31, 2020, the Company’s investment in Lantern Pharma shares was transferred from Level 3 to Level 1 when Lantern became publicly listed on Nasdaq. The Company used Monte Carlo simulation models to measure the fair value of the warrant liability and Series A convertible preferred stock redemption feature at $ 11,273 and $ 7,181 respectively on December 31, 2021, and will subsequently remeasure the fair value at the end of each period and record the change of fair value in the Consolidated Statements of Operation and Comprehensive Loss during the corresponding period. Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. During the year ended December 31, 2021, the Company’s stock price decreased from initial valuation. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases. Stock price is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. 26. Commitments and Contingencies Development costs On November 10, 2020, the Company entered into a cost sharing agreement with Smerud for the development of Ixempra whereby Smerud will be entitled to 7.5 % royalties on future revenue in exchange for funding half of the development costs. As of December 31, 2021, Smerud has performed work valued at $ 155 and is entitled to a very low amount of future royalties which is not probable or estimable at of the date of these financial statements. F- 57 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 26. Commitments and Contingencies (cont.) License Agreement with 2-BBB Medicines B.V. for 2X-111 On March 27, 2017, we in-licensed the exclusive worldwide rights to the central nervous system (“CNS”) and/or cerebrocardiovascular drug application, including the (preventive) treatment of peripheral effects of agents causing CNS disease or symptoms, including cancer, for 2X-111 from 2-BBB Medicines B.V. (“2-BBB”) pursuant to a license agreement. Upon execution of the agreement, we paid 2-BBB a one-time, non-refundable, non-creditable payment of $ 500,000 (five hundred thousand). Pursuant to the agreement, we are solely responsible for the development of 2X-111 during the term of the agreement. Development and Sales Milestone Payments Pursuant to the agreement, we have agreed to make milestone payments to 2-BBB in connection with the development of 2X-111 by us or our affiliates, or by a third-party (a “Program Acquirer”) that assumes control of the 2X-111 development program from us corresponding to: (i) upon enrollment of the first ten patients required in a Phase 2 clinical trial; (ii) upon the successful completion of a Phase 2 clinical trial; (iii) upon dosing of the first patient in the first Phase 3 clinical trial; (iv) upon submission of the first NDA with the FDA; (v) submission of an MAA to the EMA in the European Union; (vi) upon submission of an NDA in the first of either China or India; (vii) upon receipt of the first authorization by the FDA to market and sell a licensed product; (viii) upon receipt of a MAA for a licensed product in the European Union; and (ix) upon receipt of regulatory approval in the first of either China or India. If all development milestones have been achieved, we may be obligated to pay 2-BBB up to a maximum of $27.75 million which could increase to $55.5 million if 2-BBB successfully expands the field of our license agreement to include all preventative, therapeutic and/or diagnostic uses related to cancer in humans. In addition to the development milestones described above, we have agreed to make a mid-level seven figure one-time payment upon our sales of a licensed product reaching $500 million annually and a low eight figure payment upon the first and second time our sales of a licensed product reaches $1 Billion annual. If all sales milestones have been achieved, we would be obligated to pay 2-BBB up to a maximum of $22.5 million which could increase to $45 million if 2-BBB successfully expands the field of our license agreement to include all preventative, therapeutic and/or diagnostic uses related to cancer in humans. Royalty Payments In addition to the milestone payments described above, we have agreed to pay 2-BBB royalties based on annual incremental sales of product derived from 2X-111 in an amount between five percent (5%) and ten percent (10%) of annual sales of between $0 and $100 million, between six percent (6%) and thirteen percent (13%) of annual sales between $100 million and $250 million, and between seven percent (7%) and thirteen percent (13%) of annual sales in excess of $250 million. We are obligated to pay royalties under the agreement on a product-by-product and country-by-country basis, from the period of time commencing on the first commercial sale of any product in such country and expiring upon the latest of (a) the expiration of the last valid claim of a patent within (i) the 2-BBB intellectual property and/or (ii) the joint intellectual property in such country (if, but only if, such joint intellectual property arose from activities under the clinical development plan), or (b) the tenth (10 th ) anniversary of the date of first commercial sale of such product in such country. However, the agreement may be sooner terminated without cause by us upon 120 days prior written notice, or upon written notice of a material breach of the agreement by 2-BBB that is not cured within 90 days. 2-BBB also has the right to terminate the agreement upon written notice of a material breach of the agreement by us that is not cured within 90 days (30 days for a payment default) or if we file for bankruptcy. 2-BBB also has the right to terminate the agreement in the event we challenge a 2-BBB patent and we have the right to terminate the agreement upon 30 days’ notice for specified safety reason. 27. Subsequent Events For its consolidated financial statements as of December 31, 2021, and for the year then ended, the Company evaluated subsequent events through the date on which these financial statements were issued. All subsequent events not otherwise disclosed in these financial statements are as follows: (a) Impairment of Intangible Assets At the end of March 31, 2022, the Company’s share price has declined significantly, resulting in a market valuation well below the carrying value of the Company’s intangible assets. Consequently, the Company will be testing its intangible assets for impairment as of the end of March 31, 2022. F- 58 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 27. Subsequent Events (cont.) (b) Oncoheroes Effective January 2, 2022, the Company entered into an Exclusive License Agreement with Oncoheroes Biosciences Inc. (the “Oncoheroes Agreement”) to grant Oncoheroes an exclusive royalty-bearing global license to both dovitinib and stenoparib in pediatric cancers. Oncoheroes will take responsibility for pediatric cancer clinical development activities for both clinical-stage therapeutics. Allarity will support Oncoheroes’ pediatric clinical trials by providing clinical-grade drug inventory at cost and by facilitating DRP ® companion diagnostic screening of pediatric patients for each drug. Under the licenses, Oncoheroes will receive commercialization rights for pediatric cancers, subject to the Company’s first buy-back option for each program, and the Company will receive an upfront license fee and regulatory milestones for each program, specifically one for dovitinib and one for stenoparib, as follows: i. A one-time upfront payment of $250,000 and $100,000 (two hundred and fifty thousand and one hundred thousand respectively) for stenoparib and dovitinib respectively, within 5 business days after January 2, 2022 ($350,000 (three hundred and fifty thousand) received as of April 4, 2022); and ii. two milestone payments of $1 million each due and payable upon receipt of regulatory approval of a product in the United States, and of a product in Europe, respectively. Pursuant to the Oncoheroes Agreement Allarity is also entitled to tiered royalties on aggregate net product sales (“Sales”) of between 7% and 12% on net sales of products as follows: 7% on Sales less than $100 million; 10% on Sales of greater than $100 million and less than $200 million; and 12% on Sales greater than $200 million. (c) Lantern Pharma, Inc. – Irofulven Agreement On July 23, 2021, we entered into an Asset Purchase Agreement with Lantern Pharma, Inc. relating to our inventory of Irofulven active pharmaceutical ingredients, our clinical research data relating to Irofulven developed by us during the drug development program under the May 2015 Drug License and Development Agreement for Irofulven and terminated our obligation to further advance the development of Irofulven under the May 2015 agreement. Under the Asset Purchase Agreement, Lantern Pharma agreed to pay us $ 1 million on closing of the transaction, and additional amounts: (i) when the inventory of Irofulven API is recertified with a longer shelf life; (ii) upon the initiation of treatment of the first patient in an investigator-led “compassionate use” ERCC2/3 mutation subgroup study using Irofulven in certain agreed upon investigators; (iii) upon the initiation of treatment of the first patient within twenty-four months after the closing of the transaction in any human clinical trial of Irofulven initiated by Lantern Pharma; and (iv) upon the initiation of treatment of the second patient within an agreed upon time period after the closing of the transaction in any human clinical trial of Irofulven initiated by Lantern Pharma. F- 59 ALLARITY THERAPEUTICS, INC. NOTES TO FINANCIAL STATEMENTS For the years ended December 31, 2021 and 2020 (U.S. dollars in thousands, except for share and per share data and where otherwise noted) 27. Subsequent Events (cont.) In addition to the sale of our inventory of Irofulven API and Data to Lantern Pharma, we also granted Lantern Pharma a non-exclusive, worldwide license to use our putative Irofulven DRP ® companion diagnostic to advance the development and commercialization of Irofulven and other Illudins (sesquiterpenes with anti-tumor properties produced by some mushrooms). We have also agreed not to engage in any drug development program for Illudins or any of its analogues or any use thereof for a period of five (5) years . Effective March 18, 2022, pursuant to clause (i) the inventory was recertified with a longer shelf life and as of March 31, 2022, we received $ 459 . (d) Series A Preferred Stock Conversions Between January 1, 2022, and March 31, 2022, 1,973 Series A Preferred shares (gross value of $ 2,119 ) were converted into 746,276 shares of our common stock and accordingly the balance of outstanding Series A Preferred shares was reduced to 17,827 at March 31, 2022. The latest three conversions in March 2022 were completed at less than the agreed floor price and accordingly, we recorded a liability of $ 134 . (e) Series A Preferred Stock Triggering Event As more specifically discussed below, a “Triggering Event” under the COD occurred on April 29, 2022, under Section 5(a)(ii) of the COD, which would have resulted in the following unless 3i, LP agreed to forebear and/or waive its rights under the COD: 1. An 18 % per annum dividend will start to accrue on the stated value of all outstanding Preferred Shares and will continue to accrue until the Triggering Event has been cured. The accrued dividend is added to the stated value prior to the Dividend Payment Date and paid in cash on the first trading day of the Company’s next fiscal quarter. A “Late Charge” in the amount of 18 % per annum will accrue on any amounts due to be paid to holders of the Preferred Shares if not paid when due, including payments that may be owed under Section 2(e) of the Registration Rights Agreement (“RRA”). 2. A “Triggering Event Redemption Right” will commence and remain open for a period of 20 trading days from the later of the date the Triggering Event is cured or the receipt by 3i, LP of the Triggering Event Notice. Under the Triggering Event Redemption Right, if elected by the holder of the Preferred Shares, the Company would be obligated to redeem all or a portion of the Preferred Shares for a minimum of 125% of the stated value of the Preferred Shares. Concurrently, under the provisions of the PIPE Warrant, if elected by 3i, the Company would be obligated to redeem the PIPE Warrant for the Black Sholes Triggering Event Value as defined in the warrant agreement. 3. A “Registration Delay Payment” will accrue on April 22, 2022 (the expiration of the Allowable Grace Period under the RRA) in the amount of 2 % of 3i, LP’s “ Purchase Price” as defined in the Securities Purchase Agreement which is approximately 2% of $20 million, or $400 and will continue to accrue at 2% every 30 days thereafter. Additionally, a late charge of 2% per month will accrue on any payments that are not paid when due. The Registration Delay Payments will stop accruing when the post-effective amendment is declared effective by the SEC at which time the registration statement and its prospectus will again be available for the resale of common stock. On May 4, 2022, the Company and 3i, LP entered into a Forbearance Agreement and Waiver, dated April 27, 2022, wherein 3i, LP confirmed that no Triggering Event as defined under the COD has occurred prior to April 27, 2022, that a Triggering Event under Section 5(a)(ii) will and has occurred on April 29, 2022, and that in consideration for the Registration Delay Payments the Company is obligated to pay under the RRA, and additional amounts the Company is obligated to pay under the COD and 3i, LP’s legal fees incurred in the preparation of the Forbearance Agreement and Waiver in the aggregate of $ 538,823.00 paid upon execution of the Forbearance Agreement and Waiver, and so long as the Company pays the Registration Delay Payments that become due and payable under the RRA after the execution of the Forbearance Agreement and Waiver, 3i, LP has agreed to forbear exercising any rights or remedies that it may have under the COD that arises as a result of a Triggering Event under Section 5(a)(ii) of the COD and Section 4(c)(ii) of the PIPE Warrant until the earlier to occur of (i) the date immediately prior to the date of occurrence of a Bankruptcy Triggering Event, (ii) the date of occurrence of any other Triggering Event under Section 5(a) of the COD (excluding any Triggering Event arising solely as a result of Section 5(a)(ii) of the COD and Section 4(c)(ii) of the PIPE Warrant), (iii) the time of any breach by the Company under the Forbearance Agreement and Waiver, (iv) the Resale Availability Date as defined therein and (v) June 4, 2022 (such period, the “Forbearance Period”). Provided that the Company is not in breach of its obligations under Forbearance Agreement and Waiver, effective as of the Trading Day immediately following the date the Company cures the Triggering Event under Section 5(a)(ii) of the COD, 3i, LP agrees to waive any rights or remedies that it may have under the COD that arises as a result of a Triggering Event under Section 5(a) of the COD and Section 4(c)(ii) of the PIPE Warrant that may have arisen prior to the date of the Forbearance Agreement and Waiver. F-60