Allarity Therapeutics, Inc. 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Common Stock Our common stock is listed on the Nasdaq Capital Market under the symbol “ALLR.” Prior to the consummation of the Recapitalization Share Exchange on December 20, 2021, Allarity Therapeutics A/S ordinary shares were listed on the Nasdaq First North Growth Market: Stockholm under the symbol “ALLR:ST.” Holders of Record of Common Stock As of the date of this Annual Report, we had 3 stockholders of record for our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose share are held in street name by brokers and nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. Dividend Policy We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our common stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Recent Sales of Unregistered Securities None. 66 Table of Contents Item 6. [Reserved] Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “ Risk Factors ” and elsewhere in this Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Management ’ s Discussion and Analysis of Financial Condition and Results of Operations section to the "Company," “ Allarity, ” “ we, ” “ us, ” “ our, ” and other similar terms refer to Allarity Therapeutics, Inc. and its consolidated subsidiaries. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview We are a clinical-stage, precision medicine pharmaceutical company focused on developing novel anti-cancer therapeutics for patients with high unmet medical need. We were founded on the innovation of our novel Drug Response Predictor (DRP®) platform. The DRP® technology is designed to define the gene expression signatures in cancer cells that predict the cancer cell’s sensitivity to a specific cancer therapeutic. Once defined, the DRP® gene expression signature can then be assessed in cancer tissue biopsies from patients to identify those cancers that share this signature of drug sensitivity, and by extension, to identify those patients who may then be most likely to receive benefit from that specific anti-cancer therapeutic. We have developed and published DRP® signatures for dozens of anti-cancer therapeutics. Ideally, by using DRP to identify the patients most likely to benefit clinically from a given therapeutic, clinical development of that therapeutic can be focused on a smaller, more responsive patient population, which would allow for smaller, cheaper and quicker trials while also enhancing the probability of clinical and regulatory success for that therapeutic. Historically, we have generated DRP signatures for numerous anti-cancer therapeutics and had in-licensed numerous assets for DRP-guided development, including Liposomal CisPlatin (LiPlaCis), Irofulven and dovitinib as well as the novel PARP/tankyrase inhibitor, stenoparib. In the second half of 2023, we seated two new independent directors to our board of directors, Laura E. Benjamin, PhD and Joseph W. Vazzano, CPA. Along with the chairman of the board, Gerald W. McLaughlin, Dr. Benjamin and Mr. Vazzano took the decision to replace the prior CEO, Mr. James Cullem, with Thomas H. Jensen as interim CEO. Mr. Jensen is a co-founder of Allarity and has extensive experience not only with the core DRP® platform technology but also with capital fund raising. Mr. Jensen was tasked with streamlining the organization and its finances. In June 2024, Mr. Jensen was permanently installed as the CEO. In the second half of 2024, we added a new Chief Financial Officer, Mr. Alexander Epshinsky, who comes to us after serving in accounting and controller roles in a series of small cap biotech companies. To help Mr. Jensen re-focus our clinical development program, we also added a new President and Chief Development Officer, Jeremy R. Graff, PhD, who was brought in with deep experience in cancer drug development including nearly 17 years at Eli Lilly and Company and 10 more years in various C-suite roles in biotech. We are now singularly focused on the development of stenoparib and the parallel development of the stenoparib-DRP® as a companion diagnostic. All other assets including dovitinib, Irofulven and LiPlaCis, were terminated and are no longer part of our portfolio. Stenoparib was in-licensed with exclusive world-wide rights from the Japanese Pharmaceutical company, Eisai Pharmaceuticals. Stenoparib is a novel, dual inhibitor of poly-ADP-ribose polymerase (PARP1/2) as well as tankyrases, enzymes critically important in the WNT cancer cell survival pathway. Stenoparib is currently being explored in a phase 2 clinical trial in patients with advanced, recurrent ovarian cancer who have been pre-selected for enrollment using the stenoparib-DRP®. Emerging clinical data from this ongoing trial in heavily pre-treated, advanced ovarian cancer patients show promising clinical benefit including a patient with a complete, confirmed response (i.e., absence of active disease by RECISTv1.1 criteria) as well as two patients with ongoing stable disease still on therapy more than 14 months. These compelling data in heavily pre-treated ovarian cancer patients have now prompted us to design a new clinical protocol, guided by key gynecologic oncology experts, to deepen and enrich the understanding of the clinical benefit from stenoparib treatment while also advancing the stenoparib- DRP® as a companion diagnostic used to select patients for stenoparib treatment. Recent Developments Authorized Share Increase On March 20, 2023 we filed a Second Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares from 30,500,000 to 750,500,000 and to increase the number of common stock from 30,000,000 to 750,000,000. The amendment was approved by the holders of the majority of our outstanding common stock and Series C Preferred Stock. On September 9, 2024, we filed the Sixth Certificate of Amendment with the Secretary of State of the State of Delaware to decrease the number of authorized shares from 750,500,000 to 250,500,000, and to decrease the number of our common stock from 750,000,000 to 250,000,000. The amendment was approved by our stockholders at the 2024 annual meeting held on September 3, 2024. Reverse Stock Splits On June 28 and March 24, 2023, April 9, 2024, and September 11, 2024, we effected a 1-for-40 reverse stock split, 1-for-35 reverse stock split, 1-for-20 reverse stock split, and 1-for-30 reverse stock split, respectively, of our shares of common stock (collectively, the “Reverse Stock Splits”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Splits for all periods presented. Proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock, preferred stock and warrants outstanding on September 12, 2024, which resulted in a proportional decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock and warrants, and, in the case of stock options and warrants, a proportional increase in the exercise price of all such stock options and warrants. No fractional shares were issued in connection with the Reverse Stock Splits. If, as a result of the Reverse Stock Splits, a stockholder would otherwise have been entitled to a fractional share, each fractional share was rounded up to the next whole number. Novartis Termination Notice On January 26, 2024, we received a termination notice from Novartis Pharma AG, a company organized under the laws of Switzerland (“Novartis”) due to a material breach of that certain license agreement dated April 6, 2018, as amended to date (the “License Agreement”). Accordingly, under the terms of the License Agreement, we ceased all development and commercialization activities with respect to all licensed products, all rights and licenses granted by Novartis to us reverted to Novartis; and all liabilities due to Novartis became immediately due and payable inclusive of interest which is continuing to accrue at 5% per annum. There were no payments made to Novartis in 2024. As of December 31, 2024, the liability is recorded as a current liability on our condensed consolidated balance sheets as follows: $3.6 million in accounts payable and $1.6 million in convertible promissory notes and accrued interest. SEC Investigation On July 19, 2024, we received a “Wells Notice” from the Staff of the SEC relating to our previously disclosed SEC investigation. The Wells Notice relates to our disclosures regarding meetings with the United States Food and Drug Administration (the “FDA”) regarding our NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in 2021. We understand that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year 2022. We also understand that three of our former officers received Wells Notices from the SEC relating to the same conduct. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notice informed us that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against us that would allege certain violations of the federal securities laws. On March 13, 2025, we issued a press release that we have reached a final settlement with the SEC relating to our previously disclosed SEC investigation, and as part of the settlement, we have agreed to pay a one-time civil penalty of $2.5 million. Class Action On September 13, 2024, a purported class action captioned Osman Mukeljic v. Allarity Therapeutics, Inc., et al , 1:24-cv-06952, was filed in the United States District Court for the Southern District of New York against us and certain of our current and former officers. The complaint alleged, among other things, that defendants made false and misleading statements and/or failed to disclose information related to Dovitinib NDA’s continued regulatory prospects and purported misconduct in connection with the Dovitinib NDA and/or the Dovitinib-DRP PMA. The complaint asserted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against all defendants as well as violations of Section 20(a) of the Exchange Act against the individual defendants. On February 26, 2025, we issued a press release announcing the dismissal of this class action lawsuit. Chief Executive Officer On December 8, 2023, James G. Cullem was terminated as our Chief Executive Officer and effective January 27, 2024, Mr. Cullem resigned as a director of Allarity. On December 8, 2023, Thomas H. Jensen was appointed by our board of directors as Interim Chief Executive Officer to replace Mr. Cullem. Prior to his appointment as Chief Executive Officer, Mr. Jensen was paid consulting fees for his services to us. Effective June 1, 2024, we entered into a Management Services Agreement (“MSA”) with Ljungaskog Consulting AB, a Swedish limited liability company owned and managed by Mr. Jensen, which superseded and replaced the existing consulting agreement. Funding and Capital Resources Since our inception through December 31, 2024, our operations have been financed primarily by the sale of preferred stock, convertible promissory notes, and the sale and issuance of our common shares. Since inception, we have had significant operating losses. Our net loss was $24.5 million and $11.9 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had $19.5 million in cash, and an accumulated deficit of $119.0 million. Our primary use of cash is to fund operating expenses, which consist of research and development as well as regulatory expenses related to advancing our therapeutic candidate, stenoparib, in addition to general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We expect that our current cash is sufficient to fund operations through at least the next 12 months from the date of this Annual Report. We have based this estimate on assumptions that may prove wrong, and we could use our capital resources sooner than we currently expect. We will need to secure additional funding to carry out potential future pre-clinical, clinical, and commercialization activities. Until we can generate substantial revenue from product sales, if that occurs, we plan to finance our activities through equity sales, debt financing, or other capital sources, including collaborations or strategic transactions. However, we may face challenges in raising additional funds or securing favorable terms for such agreements. If we fail to secure necessary capital or agreements in a timely manner, we may need to significantly delay, reduce, or halt the development and commercialization of one or more programs which would adversely affect our business prospects and our ability to continue operations. Given the inherent risks in product development, we cannot accurately predict the timing or magnitude of increased expenses or when we might achieve profitability. Even if we successfully generate product sales, profitability is not guaranteed. If we fail to achieve or sustain profitability, we may be compelled to reduce or terminate operations at planned levels. In the year ended December 31, 2024, we received $37.3 million in proceeds from ATM sales net of issuance costs, $1.3 million in proceeds from 3i promissory notes, and $2.9 million in proceeds from the issuance of Convertible Redeemable Series A Preferred Stock; and we repaid $1.3 million of 3i promissory notes, and redeemed $3.5 million of Convertible Redeemable Series A Preferred Stock. In the year ended December 31, 2023, we received $11 million, net, from financing activities inclusive of: $19.1 million from equity issuances in April, July and September; $1 million from the issuance of a note to 3i; and $1.1 million from the issuance of Series C Preferred Stock; and we repaid $3.7 million in debt and redeemed $6.7 million in Series A Preferred Stock. April 2023 Offering In April 2023, we issued 119 shares of our common stock and 119 common stock purchase warrants, each exercisable for one share of common stock, at a combined public offering price of $18,000.00, and 297 pre-funded warrants, each exercisable for one share of common stock, and 297 common stock purchase warrants, each exercisable for one share of common stock only (the common stock purchase warrants sold in the public offing hereinafter referred to as the “April 2023 Common Warrants”) at a combined public offering price of $18,000.00 less the $0.001 for the pre-funded warrants, for aggregate net proceeds of approximately $6.8 million, after deducting placement agents fees and offering expenses paid by us of approximately $0.7 million, or (the "April Offering"). The common stock, pre-funded warrant and April 2023 Common Warrants were sold pursuant to a securities purchase agreement with the purchaser signatory thereto or pursuant to the prospectus which was part of an effective registration statement on Form S-1 filed with the SEC. The common stock, pre-funded warrants and April 2023 Common Warrants were immediately separable and were issued separately in the offering. All the pre-funded warrants from the April Offering were exercised in exchange for 297 common shares. July 2023 Offering In July 2023, we issued 596 shares of our common stock pre-funded warrants to purchase up to 3,478 shares of common stock (the “July Pre-Funded Warrants”), and common warrants to purchase up to 4,075 shares of common stock (the “2023 July Common Warrants”) at an effective combined purchase price of $2,700.00 per share and related common stock purchase warrants for aggregate net proceeds of approximately $10 million, after deducting placement agent fees and offering expenses paid by us of approximately $0.9 million on July 10, 2023 (the “July Offering”). The securities in the July Offering were registered pursuant to the registration statement on Form S-1, as amended (File No. 333-272469). The purchase price of each July Pre-Funded Warrant and 2023 July Common Warrant was equal to $2,700.00 less the $0.001 per share exercise price of each Pre-Funded Warrant. Such securities were sold pursuant to a securities purchase agreement with the purchaser signatory thereto or pursuant to the prospectus which was part of an effective registration statement on Form S-1 filed with the SEC. All July Pre-Funded Warrants were exercised prior in exchange for 3,478 common shares. 3i Convertible Secured Promissory Notes (2023) On November 22, 2022, we entered into a Secured Note Purchase Agreement (the “Secured Note Purchase Agreement”) with 3i, LP ("3i"), for a bridge loan to extend our cash runway beyond December 31, 2022, in order to provide us with more time to complete the process of amending our Certificate of Incorporation to increase our authorized share capital and proposed reverse stock split to facilitate additional capital investments (the “Bridge Loan”). Under the Secured Note Purchase Agreement, we had authorized the sale and issuance of three 3i Promissory Notes, with the first note in an aggregate principal amount of $350,000 to be issued at closing (which was received in November 2022); the second note in the principal amount of $1,666,640 to be issued at closing and which represented the payment of $1,666,640 due to 3i in Alternative Conversion Floor Amounts, as defined in the Certificate of Designations, that began to accrue on July 14, 2022; and the third note in an aggregate principal amount of $650,000 with respect to a new loan to be funded upon our filing a registration statement with SEC in connection with a registered offering. Each 3i Promissory Note was due to mature on January 1, 2024, carried an interest rate of 5% per annum, and was secured by all of our assets pursuant to the Security Agreement. For the twelve months ended December 31, 2023, interest expense totaled $43,000 comprised of $33,000 for contractual interest and $10,000 for the amortization of the debt discount. The bridge loan was paid in full and cancelled on April 21, 2023. On April 19, 2023, 3i provided us with a loan for $350,000, which was evidenced by a secured promissory note dated April 19, 2023 (the “April Note”), which required a mandatory conversion of the principal into 486 shares of Series A Preferred Stock (the “Note Conversion Shares”) subject to and upon the closing of the April Offering which occurred on April 21, 2023 (“April Offering Closing”). Upon the April Offering Closing, the Note Conversion Shares were issued to 3i and the April Note was cancelled. On April 20, 2023, we entered into a Cancellation of Debt Agreement with 3i, which became effective as of the April Offering Closing. Upon the closing, pursuant to the terms of the Cancellation of Debt Agreement, all of our outstanding indebtedness under the Notes and the Alternative Conversion Amount (as defined therein) due by us to 3i were paid in full. Accordingly, any and all obligations in connection therewith were extinguished without any additional further action on the part of 3i upon payment of $3.3 million in cash from a portion of the proceeds from the April Offering. On June 29, 2023, we entered into a Secured Note Purchase Agreement with 3i, (the “June 2023 Purchase Agreement”), pursuant to which, on June 30, 2023, 3i purchased a secured promissory note for a principal amount of $350,000 (the “3i June Promissory Note”). Such note matured on July 31, 2023, and carried an interest rate of 5% per annum, and was secured by all of our assets pursuant to that certain security agreement dated June 29, 2023 (the “Security Agreement”). As contemplated by the June 2023 Purchase Agreement, we filed the Second Certificate of Amendment with the Delaware Secretary of State on June 30, 2023. From the proceeds of the July Offering, on July 10, 2023, we redeemed the 3i June Promissory Note for $351,000 in cash. 3i Convertible Senior Promissory Notes (2024) During the year ended December 31, 2024, we entered into a Securities Purchase Agreement ("SPA") with 3i, pursuant to which three senior convertible promissory notes (the "2024 Notes") were issued as follows: ● On January 18, 2024, in an aggregate principal amount of $440,000 due on January 18, 2025, and with a set conversion price of $268.50 per share, for an aggregate purchase price of $400,000, representing an approximate 10% original issue discount (the “First Note”). ● On February 13, 2024, in an aggregate principal amount of $440,000 due on February 13, 2025, and with a set conversion price of $243.00 per share, for an aggregate purchase price of $400,000, representing an approximately 10% original issue discount (the “Second Note”). ● On March 14, 2024, in an aggregate principal amount of $660,000 due on March 14, 2025, and with a set conversion price of $210.00 per share, for an aggregate purchase price of $600,000, representing an approximately 10% original issue discount (the “Third Note”). We agreed to pay interest to 3i on the aggregate unconverted and then outstanding principal amount of the 2024 Notes at the rate of 8% per annum with interest payments commencing one month after initial receipt of net proceeds. The 2024 Notes and accrued interest were redeemed in full and cancelled on May 6, 2024. Additional Issuances of Common Stock Upon Exercise of Certain Warrants On April 20, 2023, we entered into a certain Modification and Exchange Agreement (the “Exchange Agreement”) with 3i pursuant to which the parties agreed to, among other things, exchange a warrant to purchase common stock issued on December 20, 2021 to 3i for a new warrant (the “Exchange Warrant”), which reflects an exercise price of $18,000.00 and represents a right to acquire 526 shares of common stock. On December 5, 2023, we received exercise notices from holders of certain warrants pursuant to which we authorized (i) the issuance of 938 shares of common stock pursuant to exercise of common stock purchase warrants at $600.00 per share for $0.6 million in cash, and (ii) the issuance of 833 shares of common stock pursuant to partial exercise of Exchange Warrant on a cashless exercise basis. 67 Table of Contents Amendments to the Certificate of Designation of Series A Preferred Stock On January 14, 2024, pursuant to the terms of the First Note, we modified the conversion price of the 3i Exchange Warrants from $600.00 to $268.50, thereby increasing the number of Exchange Warrants outstanding from 7,346 at December 31, 2023 to 16,411 outstanding at January 14, 2024. Also on January 14, 2024, the conversion price of the outstanding 1,417 shares of Series A Preferred Stock was revised from $600.00 to $268.50. We filed the Fifth Certificate of Amendment to Amended and Restated COD (the “Fifth Amendment”) with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $268.50. As of January 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the 1,417 Series A Preferred Stock outstanding at $2.0 million versus their carrying value of $1.7 million. Accordingly, we had recorded a deemed dividend of $0.2 million on January 14, 2024. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $268.50 per share results in the 1,417 shares being convertible into 5,699 shares of common stock as of January 14, 2024. On February 13, 2024, pursuant to the terms of the Second Note, we modified the conversion price of the 3i Exchange Warrants from $268.50 to $243.00 and thereby increased the number of Exchange Warrants outstanding from 16,411 on January 18, 2024, to 18,137 on February 13, 2024. We filed the Sixth Certificate of Amendment to Amended and Restated COD (the “Sixth Amendment”) with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $243.00. As of February 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the then 1,296 Series A Preferred Stock outstanding and concluded there was a gain on extinguishment of $0.1 million. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $243.00 per share results in the 1,296 shares being convertible into 16,453 shares of common stock. On March 14, 2024, pursuant to the terms of the Third Note, we modified the conversion price of the 3i Exchange Warrants from $243.00 to $210.00 and thereby increased the number of Exchange Warrants outstanding from 18,137 on February 13, 2024, to 27,648 on March 14, 2024. We filed the Seventh Certificate of Amendment to Amended and Restated COD (the “Seventh Amendment”) with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $210.00. As of March 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the then 1,296 Series A Preferred Stock outstanding and concluded there was a gain on extinguishment of $0.1 million. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $210.00 per share results in the 1,215 shares being convertible into 17,843 shares of common stock. During the period April 1, 2024, through May 2, 2024, we had further amended the conversion prices of the Series A Convertible Preferred Stock, the Exchange Warrants and the 2024 Notes to equal the then current last sale price of shares of our common stock of $34.50 as of May 1, 2024. 3i exercised its option to convert 1,417 shares of Series A Preferred Stock for 14,376,690 shares of common stock at fair value of $1.8 million. As of December 31, 2024, there were no issued and outstanding shares of Series A Preferred Stock. ATM Facility On March 19, 2024, we entered into an At-The-Market Issuance Sales Agreement, as amended (the "Sales Agreement") with Ascendiant Capital Markets, LLC ("Ascendiant") under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.0001 per share, having an aggregate gross sales price of up to $50 million, to or through Ascendiant. The offer and sales of the shares are made pursuant to a previously filed shelf registration statement on Form S-3 (File No. 333-275282), originally filed with the Securities and Exchange Commission (the "SEC") on November 2, 2023 and declared effective on November 29, 2023, and the related prospectus supplement dated September 9, 2024 and filed with the SEC on such date. We agreed to pay Ascendiant a commission of 3.0% of the gross proceeds from the sales of shares sold through Ascendiant under the Sales Agreement. We agreed to reimburse Ascendiant for certain expenses incurred in connection with the Sales Agreement. Both we and Ascendiant may each terminate the Sales Agreement at any time upon specified prior written notice. For the year ended December 31, 2024, we sold an aggregate of 6,953,259 shares of our common stock pursuant to the Sales Agreement, resulting in net proceeds of approximately $38.8 million after deducting underwriting discounts. As of March 26, 2025, no more shares of our common stock remained available for the sale under the ATM program. 68 Table of Contents August 2024 Series A Convertible Redeemable Preferred Stock On August 19, 2024 (the "Closing Date") we entered into a Securities Purchase Agreement (the “August 2024 SPA”) with certain purchasers (the “August 2024 Purchasers”), pursuant to which we issued and sold, in a private placement (the “August 2024 Offering”), 35,000 shares of our Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the “August 2024 Preferred Stock”), for net proceeds of approximately $2.9 million, after the deduction of discounts, fees and offering expenses. On the Closing Date, we filed a certificate of designation (the “August 2024 COD”) with the Secretary of the State of Delaware designating the rights, preferences and limitations of the August 2024 Preferred Stock. Under the August 2024 COD, for purposes of determining the presence of a quorum at any meeting of the stockholders of Allarity at which the August 2024 Preferred Stock are entitled to vote and the voting power of the August 2024 Preferred Stock, each holder of the August 2024 Preferred Stock shall be entitled to a number of votes equal to shares of our common stock into which such August 2024 Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion. The August 2024 Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the common stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to the common stock basis. The holders of the August 2024 Preferred Stock are entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on the common stock. The August 2024 Preferred Stock is convertible, at the option of the holders and, in certain circumstances, by us, into common stock, as determined by dividing the net purchase price of $90 per share by the conversion price of $5.10, at the option of the holders. On the Closing Date, we entered into a Registration Rights Agreement (the “August 2024 RRA”) with the August 2024 Purchasers, pursuant to which we agreed to file a registration statement with the SEC, to register for resale the common stock issuable upon the conversion of the August 2024 Preferred Stock. The registration statement was filed with the SEC on August 30, 2024. In connection with the August 2024 Offering, we paid $0.2 million to Ascendiant Capital Markets, LLC, our placement agent. All of the August 2024 Preferred Stock was redeemed in September 2024. As a result of the redemption of the August 2024 Preferred Stock, we presented a deemed dividend of $0.6 million during the twelve months ended December 31, 2024. 69 Table of Contents The Private Placement (PIPE Financing) and Amendments to the Certificate of Designation of Series A Preferred Stock Concurrently with the execution of the Recapitalization Share Exchange on May 20, 2021, we entered into a Securities Purchase Agreement (“SPA”) and related agreements with an institutional investor (the “Investor”) wherein we agreed to sell, and the Investor agreed to purchase, 20,000 shares of our Series A Preferred Stock and a warrant to purchase additional shares of our common stock (the “PIPE Warrant”) for an aggregate purchase price of $20 million with a closing conditioned upon the consummation of our Recapitalization Share Exchange and a listing of our common stock on Nasdaq. On November 22, 2022, we amended Section 12 of the Certificate of Designation of Series A Preferred Stock to provide for voting rights. Subject to a 9.99% beneficial ownership limitation, the holders of Series A Preferred Stock were granted the right to vote on all matters presented to the stockholders for approval together with the shares of common stock, voting together as a single class, on an “as converted” basis using the “Conversion Price” (initially $9.9061 per share before any adjustment) (rounded down to the nearest whole number and using the record date for determining our stockholders eligible to vote on such matters), except as required by law (including without limitation, the DGCL) or as otherwise expressly provided in our Certificate of Incorporation or the Certificate of Designations of Series A Preferred Stock. The voting rights described above expired on February 28, 2023. On December 9, 2022, we and 3i entered into a letter agreement which provided that pursuant to Section 8(g) of the Certificate of Designations for the Series A Preferred Stock, the parties agreed that the Conversion Price was modified to mean the lower of: (i) the Closing Sale Price on the trading date immediately preceding the Conversion Date and (ii) the average Closing Sale Price of the common stock for the five trading days immediately preceding the Conversion Date, for the Trading Days through and inclusive of January 19, 2023. Any conversion which occurs shall be voluntary at the election of the Holder, which shall evidence its election as to the Series A being converted in writing on a conversion notice setting forth the then Minimum Price. Management determined that the adjustment made to the Conversion Price is not a modification of the COD which allows for adjustments to the Conversion Price at any time by us and the other terms of the Certificate of Designations remained unchanged. On January 23, 2023, we and 3i amended the letter agreement entered into on December 8, 2022, to provide that the modification of the term Series A Preferred Stock Conversion Price (“Series A Preferred Stock Conversion Price”) to mean the lower of: (i) the Closing Sale Price (as defined in the Certificate of Designations of Series A Preferred Stock (“Series A Certificate of Designations”)) on the trading date immediately preceding the Conversion Date (as defined in the Series A Certificate of Designations and (ii) the average Closing Sale Price of the common stock for the five trading days immediately preceding the Conversion Date, for the Trading Days (as defined in the Series A Certificate of Designations) will be in effect until terminated by us and 3i. On April 20, 2023, we entered into a certain Modification and Exchange Agreement (the “Exchange Agreement”) with 3i pursuant to which the parties agreed to, among other things, subject to the April Offering Closing, (i) amend the Certificate of Designations for the Series A Convertible Preferred Stock (the “Amended COD”), which among other things, eliminates the Series A Preferred Stock redemption right and dividend (except for certain exceptions as specified in the Amended COD), and provides for the conversion of Series A Preferred Stock into Common Stock at a conversion price of $0.75 which is equal to the price for a share of Common Stock sold in the April Offering, (ii) exchange 50,000 shares of Series C Preferred Stock (the “Series C Shares”) beneficially owned by 3i for 5,577 shares of Series A Preferred Stock (the “Exchange Shares”), (iii) exchange a warrant to purchase common stock issued on December 20, 2021 to 3i (the “Original Warrant”) for a new warrant (the “Exchange Warrant”), which reflects an exercise price of $30.00 (the “New Exercise Price”) and represents a right to acquire 315,085 shares of Common Stock (the “New Warrant Shares”). In addition to the satisfaction or waiver of customary and additional closing conditions set forth in the Exchange Agreement, the transactions contemplated by the Exchange Agreement were subject to (a) the occurrence of the closing of the Offering and (b) the filing of the Amended COD with the Delaware Secretary of State. On April 21, 2023, the closing of the transactions contemplated by the Exchange Agreement occurred and the Exchange Warrant and the Exchange Shares were issued to 3i, and the Original Warrant and the Series C Shares were cancelled. In addition, on April 21, 2023, the Amended COD was filed with the Delaware Secretary of State. On April 20, 2023, we also entered into a Cancellation of Debt Agreement. Pursuant to such agreement, 1,550 shares of Series A Preferred Stock (the “Redemption Shares”) beneficially owned by 3i were redeemed in full for a purchase price of $1,652, which redemption price was paid in cash from the portion of the proceeds from the April Offering. We also entered into the First Amendment to the Registration Rights Agreement dated May 20, 2023 (the “RRA”), which became effective upon the April Offering Closing, to amend certain defined terms under the RRA to include the Exchange Shares, the New Warrant Shares and the Note Conversion Shares. 70 Table of Contents On April 21, 2023, in connection with the transactions contemplated under the Exchange Agreement, we filed an Amended and Restated Certificate of Designations of our Series A Convertible Preferred Stock (the “Amended and Restated Series A COD”) with the Delaware Secretary of State. The Amended and Restated Series A COD eliminates the Series A Preferred Stock redemption right and dividend (except for certain exceptions as specified therein), and provides for the conversion of Series A Preferred Stock into Common Stock at a conversion price equal to the price for a share of Common Stock sold in the April Offering, $30.00 per share, and based on a stated value of $1,080 per share. As a result of the Amended and Restated Series A COD, we determined that the Series A Preferred Stock met the definition of equity and reclassified it from mezzanine equity. On May 30, 2023, we filed an amendment to the Amended and Restated Certificate of Designations for the Series A Preferred Stock with the Delaware Secretary of State (the “Amended COD”) to amend the voting rights of the Series A Preferred Stock which among other things provided additional voting rights to the Series A Preferred Stock. Under the Amended COD, holders of the Series A Preferred Stock have the following voting rights: (1) holders of the Series A Preferred Stock have a right to vote on all matters presented at the Special Meeting together with the Common Stock as a single class on an “as converted” basis using the conversion price of $30.00 and based on stated value of $1,080 subject to a beneficial ownership limitation of 9.99%, and (2), in addition, holders of Series A Preferred Stock have granted the Board the right to vote, solely for the purpose of satisfying quorum and casting the votes necessary to adopt a reverse stock split of our issued and outstanding shares of Common Stock (the “Reverse Stock Split Proposal”) and to adjourn any meeting of stockholders called for the purpose of voting on reverse stock split (the “Adjournment Proposal”) under Delaware law, that will “mirror” the votes cast by the holders of shares of Common Stock and Series A Preferred Stock, voting together as a single class, with respect to the Reverse Stock Split Proposal and the Adjournment Proposal. The number of votes per each share of Series A Preferred Stock that may be voted by the Board shall be equal to the quotient of (x) the sum of (1) the original aggregated stated value of the Series A Preferred Stock when originally issued on December 20, 2021 (calculated based on the original stated value of $1,000 of the Series A Preferred Stock multiplied by 20,000 shares of Series A Preferred Stock) and (2) $1,200,000, which represents the purchase price of the Series C Preferred Stock when originally issued; divided by (y) the conversion price of $30.00. If the Board decides to cast the vote, it must vote all votes created by the Amended COD in the same manner and proportion as votes cast by the holders of Common Stock and Series A Preferred Stock, voting as single class. The Series A Preferred Stock voting rights granted to the holders thereof relating to the Reverse Stock Split Proposal and the Adjournment Proposal 2 expired automatically on July 31, 2023. On June 6, 2023, we and 3i entered into a separate limited waiver and amendment agreement whereby 3i (“3i Waiver Agreement”) agreed to waive certain rights granted under a Series A Preferred Stock securities purchase agreement dated December 20, 2021, the Exchange Agreement, and the securities purchase agreement related to the April Offering in exchange for, among other things, amending the conversion price of the Series A Preferred Stock to equal the public offering price of the shares of Common Stock in the July Offering. Upon the consummation of the July Offering, the conversion price of the Series A Preferred Stock was reduced to $4.50. On July 10, 2023, we filed a Third Certificate of Amendment to the Amended and Restated Certificate of Designations of Series A Preferred Stock (“Third Amendment”) to effect the change to conversion price. In connection with the September 2023 Inducement Letter and the transactions contemplated therein, we and 3i, LP entered into a limited waiver agreement (the “Waiver”) pursuant to which 3i, LP agreed to allow the filing of the Resale Registration Statement not otherwise permitted under certain agreements with 3i, LP. In consideration of entering in the Waiver, we agreed to amend the “Conversion Price” of the Series A Convertible Preferred Stock to equal $1.00 as soon as practicable. On September 22, 2023, we filed the Fourth Certificate of Amendment to the Amended and Restated Certificate of Designations of Series A Convertible Preferred Stock (“Fourth Amendment”) with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $1.00. In addition, as a result of the issuance of the Inducement Warrants, pursuant to the terms of the Exchange Warrant, in September 2023 the number of shares exercisable and the exercise price of the Exchange Warrant was adjusted to 9,452,667 shares of Common Stock and $1.00 per share, respectively. On January 14, 2024, pursuant to the terms of the January 14th, 2024, 3i, LP Bridge Loan, we modified the conversion price of the 3i Exchange Warrants from $1.00 to $0.4476, thereby increasing the number of Exchange Warrants outstanding from 4,407,221 at December 31, 2023, to 9,846,339 outstanding at January 14, 2024. Also on January 14, 2024, the conversion price of the outstanding 1,417 shares of Series A Preferred Stock was revised from $1.00 to $0.4476. We filed the Fifth Amendment with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $0.4476. At a stated value of $1,080 for each share of Series A Preferred Stock, the revised price of $0.4476 per share results in the 1,417 shares being convertible into 3,419,035 common shares as of January 14, 2024. On February 13, 2024, pursuant to the terms of the February 13, 2024, 3i, LP Bridge Loan, we modified the conversion price of the 3i Exchange Warrants from $0.4476 to $0.4050 and thereby increased the number of Exchange Warrants outstanding from 9,846,339 on January 18, 2024, to 10,882,028 on February 13, 2024. We also agreed to amend the conversion price of the Series A Preferred Stock to equal $0.405 as soon as practicable. We filed the Sixth Amendment with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $0.405. At a stated value of $1,080 for each share of Series A Preferred Stock, the revised price of $0.405 per share results in the 1,296 shares being convertible into 3,456,000 common shares. 71 Table of Contents Annual Stockholder Meeting and Redemption of Series B Preferred Stock On February 3, 2023, we held our previously adjourned annual meeting of stockholders (the “Annual Meeting”). Nine proposals were submitted to our stockholders for a vote at the Annual Meeting including a proposal to increase the number of authorized shares and a proposal to effect a reverse stock split. Upon conclusion of the Annual Meeting, all of the 190,786 shares of Series B Preferred Stock were automatically redeemed, with the holders of the Series B Preferred Stock only having a right to receive the purchase price for the redemption, which was $0.01 per share of Series B Preferred Stock. In addition, the proposals to increase the number of authorized shares and to effect a reverse stock split did not pass by the requisite shareholder vote at the Annual Meeting. In light of our financing needs and our obligations to 3i, L.P., as holder of the Series A Preferred Stock and PIPE Warrant, we conducted a private placement offering pursuant to which we issued 50,000 shares of Series C Preferred Stock. Establishment and Sale of Series C Preferred Stock On February 24, 2023, we filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Redeemable Preferred Stock (the “Series C COD”) with the Delaware Secretary of State designating 50,000 shares of its authorized and unissued preferred stock as Series C Preferred Stock with a stated value of $27.00 per share. On February 28, 2023, we filed a Certificate of Amendment to the Series C COD (the “COD Amendment”) to clarify the terms of conversion price and floor price based on definitions provided in the Series C COD (the COD Amendment, together with the Series C COD, the “COD”). Each share of Series B Preferred Stock has 620 votes and is subject to certain redemption rights and voting limitations. See description in exhibit titled “ Description of Capital Stock - Series C Preferred Stock. ” On February 28, 2023, we entered into a SPA with 3i, L.P. for the purchase and sale of 50,000 shares of Series C Convertible Redeemable Preferred Stock, par value of $0.0001 per share of Series C Preferred Stock at a purchase price of $24.00 per share, for a subscription receivable in the aggregate amount equal to the total purchase price of $1.2 million (the “Series C Offering”). The Shares are convertible into shares of our common stock, subject to the terms of the COD. The conversion price for the Series C Preferred Stock is initially equal the lower of: (i) $0.182, which is the official closing price of the Common Stock on the Nasdaq Global Market (as reflected on Nasdaq.com) on the Trading Day (as defined in the COD) immediately preceding the Original Issuance Date (as defined in the COD); and (ii) the lower of: (x) the official closing price of the Common Stock on the Nasdaq Global Market (as reflected on Nasdaq.com) on the Trading Day immediately preceding the Conversion Date or such other date of determination; and (y) the average of the official closing prices of the Common Stock on the Nasdaq Global Market (as reflected on Nasdaq.com) for the 5 Trading Days immediately preceding the Conversion Date (as defined in the COD) or such other date of determination, subject to adjustment herein (the “Conversion Price”), with the Conversion Price being no less than $0.0370 (the “Floor Price”). In the event that the Conversion Price on a Conversion Date would have been less than the applicable Floor Price if not for the immediately preceding sentence, then on any such Conversion Date we will pay the Holder an amount in cash, to be delivered by wire transfer out of funds legally and immediately available therefor pursuant to wire instructions delivered to us by the Holder in writing, equal to the product obtained by multiplying (A) the higher of (I) the highest price that the Common Stock trades at on the Trading Day immediately preceding such Conversion Date and (II) the applicable Conversion Price and (B) the difference obtained by subtracting (I) the number of shares of Common Stock delivered (or to be delivered) to the Holder on the applicable Share Delivery Date with respect to such conversion of Series C Preferred Stock from (II) the quotient obtained by dividing (x) the applicable Conversion Amount that the Holder has elected to be the subject of the applicable conversion of Series C Preferred Stock, by (y) the applicable Conversion Price without giving effect to clause (x) of such definition. The Offering closed on February 28, 2023. In connection with the Series C Offering, concurrently with the SPA, we entered into a registration rights agreement with 3i, L.P. (the “RRA”) pursuant to which we are required to file a registration statement with the SEC to register for resale the shares of Common Stock that are issued upon the potential conversion of the Shares. Under the terms of the RRA, if we fail file an Initial Registration Statement (as defined in the RRA) on or prior to its Filing Date (as defined in the RRA), or fail to maintain the effectiveness of the registration statement beyond defined allowable grace periods set forth in the RRA, we will incur certain registration delay payments, in cash and as partial liquidated damages and not as a penalty, equal to 2.0% of 3i, L.P.’s subscription amount of the Shares pursuant to the SPA. In addition, if we fail to pay any partial liquidated damages in full within 7 days after the date payment, we will have to pay interest at a rate of 18.0% per annum, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. We had also agreed to pay all fees and expenses incident to the performance of the RRA, except for any broker or similar commissions. In connection with the Series C Offering, we and 3i, L.P. entered into a limited waiver agreement pursuant to which 3i, L.P. confirmed that the sale and issuance of the Shares will not give rise to any, or trigger any, rights of termination, defaults, amendment, anti-dilution or similar adjustments, acceleration or cancellation under the existing agreements with 3i, L.P. 72 Table of Contents Risks and Uncertainties We are 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 our research and development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales. Contractual Obligations and Commitments We enter into agreements in the normal course of business with vendors for preclinical studies, clinical trials and other service providers for operating purposes. These contracts are generally cancellable at any time by us following a certain period after notice and therefore, we believe that our non-cancellable obligations under these agreements are not material. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of financial condition and results of operations is based upon our audited consolidated financial statements for the years ended December 31, 2024 and 2023, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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. Actual results could differ from those estimates or assumptions. While our significant accounting policies are described in the notes to our consolidated financial statements for the years ended December 31, 2024 and 2023, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results. Acquired in-process research and development (IPR&D) Acquired IPR&D represents the fair value assigned to research and development assets that we 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 as well as when events and circumstances indicate there is a potential impairment. Significant quantitative indicators considered are our 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 our 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; ● Estimates of future cash flows from potential milestone payments and royalties related to out-licensed product sales; and ● A discount rate reflecting our weighted average cost of capital and specific risk inherent in the underlying assets. 73 Table of Contents 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. During the year ended December 31, 2024, we recorded impairment losses of $9.7 million on our intangible assets and as of December 31, 2024, the intangible assets have been fully impaired. During the year ended December 31, 2023, no impairment losses were recognized. Research contract costs and accruals We have entered into various research and development contracts with companies both inside and outside of the United States. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, we analyze 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 our estimates. Our historical accrual estimates have not been materially different from the actual costs. Convertible debt instruments We follow 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 and Comprehensive Loss. Additionally, we account for certain convertible debt (“Convertible Notes”) issued under the fair value option election of ASC 825, Financial Instruments 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. Warrants When we issue warrants we evaluate 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”), we classify a warrant as equity so long as it is “indexed to our equity” and several specific conditions for equity classification are met. A warrant is not considered indexed to our equity, in general, when it contains certain types of exercise contingencies or adjustments to exercise price. If a warrant is not indexed to our 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 Consolidated Statement of Operations and Comprehensive Loss. As of December 31, 2024, and 2023, we had warrants outstanding for stock-based compensation that were classified as equity, and outstanding investor warrants that were classified as derivative liabilities and classified as “Warrant liability” in the Consolidated Balance Sheets. 74 Table of Contents Derivative financial instruments We do not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. We evaluate 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. Stock-based compensation We account for stock-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 our consolidated statements of operations and comprehensive loss. We record the expense for option awards using either a graded or straight-line vesting method. We account for forfeitures as they occur. For stock-based awards granted to employees, directors and non-employee consultants, the measurement date 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. We review stock award modifications when there is an exchange of original award for a new award. We calculate 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. We immediately recognize 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. We apply the Black-Scholes model as it believes it is the most appropriate fair value method for all equity awards. Financial Operations Overview Since our inception in September of 2004, we have focused substantially all our resources on conducting research and development activities, including drug discovery and preclinical studies, establishing, and maintaining our intellectual property portfolio, the manufacturing of clinical and research material, hiring personnel, raising capital and providing general and administrative support for these operations. In recent years, we have recorded very limited revenue from collaboration activities, or any other sources. We have funded our operations to date primarily from convertible notes and the issuance and sale of our securities. Since our inception of our predecessor, Allarity Therapeutics A/S, we have incurred losses and have an accumulated deficit of $119.0 million as of December 31, 2024. Our net losses were $24.5 million and $11.9 million for the years ended December 31, 2024 and 2023, respectively. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we: ● advance stenoparib through clinical trials; ● pursue regulatory approval of stenoparib; ● operate as a public company; ● continue our preclinical programs and clinical development efforts; ● continue research activities for stenoparib; and ● manufacture supplies for our preclinical studies and clinical trials. 75 Table of Contents Components of Operating Expenses Research and Development Expenses Research and development expenses include: ● expenses incurred under agreements with third-party contract organizations, and consultants; ● costs related to production of drug substance, including fees paid to contract manufacturers; ● laboratory and vendor expenses related to the execution of preclinical trials; and ● employee-related expenses, which include salaries, benefits and stock-based compensation. We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks and estimates of services performed using information and data provided to us by our vendors and third-party service providers. Non-refundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and accounted for as prepaid expenses. The prepayments are then expensed as the related goods are delivered and as services are performed. To date, most of these expenses have been incurred to advance our lead drug candidate stenoparib. We expect our research and development expenses on stenoparib to increase substantially for the foreseeable future as we continue to invest to accelerate stenoparib in clinical trials designed to attain regulatory approval. Costs related to dovitinib and IXEMPRA will decrease precipitously as these have been terminated. We expect additional costs in research and development activities as we continue to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of stenoparib is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of stenoparib. General and Administrative Expenses General and administrative expenses consist primarily of personnel-related costs, facilities costs, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, and accounting services. Personnel-related costs consist of salaries, benefits, and stock-based compensation. Facilities costs consist of rent and maintenance of facilities. We expect our general and administrative expenses to increase for the foreseeable future due to anticipated increases in headcount to advance stenoparib and because of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services. Results of Operations Comparison of years ended December 31, 2024 and 2023 The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year ended December 31, Increase/ 2024 2023 (Decrease) (In thousands) Operating expenses: Research and development $ 6,096 $ 7,103 $ (1,007 ) Impairment of intangible assets 9,703 — 9,703 General and administrative 11,442 10,026 1,416 Total operating costs and expenses 27,241 17,129 10,112 Loss from operations (27,241 ) (17,129 ) (10,112 ) Other income (expense) — Interest income 533 22 511 Interest expenses (653 ) (498 ) (155 ) Foreign exchange gains (losses) (212 ) 133 (345 ) Fair value of inducement warrants — (4,189 ) 4,189 Loss on modification of warrants — (591 ) 591 Change in fair value adjustment of warrant derivative liabilities 2,677 10,434 (7,757 ) Total other income 2,345 5,311 (2,966 ) Loss before income tax expense (benefit) (24,896 ) (11,818 ) (13,078 ) Income tax expense (benefit) (381 ) 83 (464 ) Net loss $ (24,515 ) $ (11,901 ) $ (12,614 ) 76 Table of Contents Research and Development Expenses We currently do not track our research and development costs by product candidate. A breakdown by nature of type of expense for the years ended December 31, 2024 and 2023, is provided below. Year ended December 31, Increase/ 2024 2023 (Decrease) (In thousands) Research study expenses $ 2,906 $ 2,887 $ 19 Tax credit (798 ) (800 ) 2 Milestone payments 150 150 — Manufacturing & supplies 1,715 2,906 (1,191 ) Contractors 855 996 (141 ) Staffing 1,197 873 324 Other 71 91 (20 ) $ 6,096 $ 7,103 $ (1,007 ) The decrease of $1.0 million in research and development cost was primarily due to decreases of $1.2 million in manufacturing and supplies, and $0.1 million in contractor costs, partially offset by an increase of $0.3 million in staffing costs. Impairment of Intangible Assets As a result of continued downward pressure on our common stock and updated clinical development plan, we performed an impairment assessment on the individual intangible assets utilizing a discounted cash flow model with a weighted average cost of capital of 26%, and recognized a full impairment charge of $9.7 million during the year ended December 31, 2024. There was no impairment charge in 2023. General and Administrative Expenses General and administrative expenses increased by $1.4 million for the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was primarily due to an increase of $3.5 million in audit and legal expenses, which includes a $2.5 million SEC settlement charge, $0.3 million in franchise tax expense, $0.3 million in personnel costs, partially offset by a decrease of $1.1 million in insurance expense, $1.1 million in financing costs, and $0.5 million in consulting and professional services. Other Income (Expense) Other income of $2.3 million recognized in the year ended December 31, 2024, consisted primarily of a $2.7 million fair value adjustment of warrant derivative liabilities, and $0.5 million in interest income, partially offset by $0.7 million in interest expense and $0.2 million in foreign exchange loss. Other income of $5.3 million recognized in the year ended December 31, 2023, consisted primarily of a $10.4 million fair value adjustment of warrant derivative liabilities and $0.2 million in foreign exchange gain, partially offset by $4.2 million fair value of inducement warrants, $0.6 million loss on modification to warrants, and $0.5 million in interest expense. Changes in the fair value of our derivative and warrant liabilities and convertible debt are measured using level 3 inputs as described in our consolidated financial statements. Income taxes During the years ended December 31, 2024, and 2023, we recognized $0.4 million in income tax recovery and $0.1 million in income tax expense, respectively. Liquidity, Capital Resources and Plan of Operations Cash Flows for the Years Ended December 31, 2024 and 2023 The following table summarizes our cash flows for the years indicated: Year Ended December 31, (In thousands) 2024 2023 Total cash provided by (used in): Operating activities $ (17,352 ) $ (12,745 ) Investing activities (298 ) — Financing activities 36,792 10,995 Effect of foreign exchange rates on cash 225 (113 ) Net increase (decrease) in cash $ 19,367 $ (1,863 ) Operating Activities Net cash used in operating activities was approximately $17.4 million for the year ended December 31, 2024, primarily comprised of our $24.5 million net loss and $2.7 million reduction in fair value of warrant derivative liability, $0.4 million reduction in deferred income tax, and $0.1 million unrealized foreign exchange gain, partially offset by $9.7 million intangible asset impairment, $0.3 million in common stock issued for services, $0.2 million non-cash interest expense, $0.1 million stock-based compensation and $0.1 million change in operating assets and liabilities. During the year ended December 31, 2023, cash used in operating activities of $12.8 million was attributable to a net loss of $11.9 million, $4.2 million in net non-cash charges, offset by a $3.3 million change in net operating assets and liabilities. The non-cash of charges consisted of a $4.2 million fair value of inducement warrants, a $0.6 million loss on modification of warrants, and non-cash interest of $0.5 million, offset by a $10.4 million fair value adjustment to derivative liabilities, stock-based compensation of $0.1 million and unrealized gain on foreign currency of $0.2 million. Investing Activities Net cash used in investing activities was approximately $0.3 million for the year ended December 31, 2024, due to $0.3 million in purchases of lab equipment. There was no investing activity for the year ended December 31, 2023. 77 Table of Contents Financing Activities Net cash provided by financing activities for the year ended December 31, 2024 was $36.8 million, primarily related to $38.8 million in proceeds from ATM sales of common stock net of issuance costs, $2.9 million in net proceeds from the issuance of Series A Convertible Redeemable Preferred Stock, and $1.3 million in proceeds from 3i debt promissory notes, partially offset by the $3.5 million redemption of Series A Convertible Redeemable Preferred Stock and repayment of $1.3 million of 3i debt promissory notes. Net cash provided by financing activities for the year ended December 31, 2023 was $11.0 million, primarily related to $19.1 million from equity financings in April, July and September, and $1.1 million in net proceeds from the issuance of Series C Preferred, partially offset by the repayment of $3.7 million in debt and $6.7 million for the redemption of Series A Preferred Stock. Recently Issued Accounting Pronouncements See the section titled in Note 2 to the Company’s consolidated financial statements for the year ended December 31, 2024, appearing elsewhere herein. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this Item. Item 8. Financial Statements and Supplementary Data. The financial statements required by this item begin on page F-1 with the index to financial statements followed by the financial statements. 78 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.