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:
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.
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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.
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August 2024 Series A Convertible RedeemablePreferred 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.
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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.
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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.
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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.
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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;
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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.
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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.
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Components of Operating Expenses
Research and Development Expenses
Research and development expenses include:
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/
(In thousands)
Operating expenses:
Impairment of intangible assets 9,703 — 9,703
Other income (expense) —
Foreign exchange gains (losses) (212 ) 133 (345 )
Fair value of inducement warrants — (4,189 ) 4,189
Loss on modification of warrants — (591 ) 591
Income tax expense (benefit) (381 ) 83 (464 )
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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/
(In thousands)
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,
Total cash provided by (used in):
Investing activities (298 ) —
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.
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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.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls And Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this Annual Report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, 2024.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As of December 31, 2024, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the results of its evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
Because we are a non-accelerated filer and smaller reporting company, Wolf & Company, P.C., our independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting.
Change in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, during the fourth quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevents Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The Company has an insider trading policy governing the purchase, sale and other dispositions of the Company’s securities that applies to all Company personnel, including directors, officers, employees, and other covered persons. The Company also follows procedures for the repurchase of its securities. The Company believes that its insider trading policy and repurchase procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company. A copy of the Company’s insider trading policy is filed as Exhibit 19 to this Annual Report.
The remaining information required by this Item will be included in the Company’s definitive proxy statement to be filed with the SEC within 120 days after December 31, 2024, in connection with the solicitation of proxies for the Company’s 2025 annual meeting of stockholders (the “2025 Proxy Statement”), and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item will be included in the 2025 Proxy Statement, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be included in the 2025 Proxy Statement, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this Item will be included in the 2025 Proxy Statement, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this Item will be included in the 2025 Proxy Statement, and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as part of this Annual Report:
(1) Financial Statements
The following financial statements of Allarity, and the Report of Independent Registered Public Accounting Firm, is included at the end of this Annual Report beginning on page F-1:
(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.
(b) Exhibits:
The following exhibits are filed as part of this Annual Report.
Exhibit No. Description
3.1(a) Certificate of Incorporation of Allarity Therapeutics, Inc.
3.3(c) Amended and Restated Bylaws of Allarity Therapeutics, Inc.
3.7(q) Certificate of Designation of the Series B Preferred Stock
3.8(s) Certificate of Designation of the Series C Preferred Stock
3.17(hh) Fourth Certificate of Amendment (Series A Preferred Stock)
3.18(jj) Fifth Certificate of Amendment (Series A Preferred Stock)
3.19(ll) Sixth Certificate of Amendment (Series A Preferred Stock)
4.2(aa) Warrant to Purchase Common Stock (3i, LP)
4.3(aa) Form of Pre-Funded Warrant (April 2023)
4.4(aa) Form of Common Warrant (April 2023)
4.5(aa) Modification and Exchange Warrant
4.6(ee) Form of Pre-Funded Warrant (July 2023)
4.7(ee) Form of Common Warrant (July 2023)
4.8(ff) Form of Amended and Restated Common Stock Purchase Warrant (July 2023)
4.9(gg) Form of New Warrant
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4.10(nn) Form of Pre-Funded Warrant
4.11(nn) Form of Series A Common Warrant
4.12(nn) Form of Series B Common Warrant
4.13(jj) Senior Convertible Note
4.14(ll) Senior Convertible Note, dated as of February 13, 2024
10.1#(e) Allarity Therapeutics, Inc. 2021 Equity Incentive Plan
10.22(i) Convertible Promissory Note
10.23(j) Forbearance Agreement and Waiver
10.24(l) First Amendment to Forbearance and Waiver
10.25†#(o) Separation Agreement with Steve Carchedi
10.26†#(o) Separation Agreement with Jens Knudsen
10.27(o) Second Amendment to Development Option & License Agreement
10.28†(p) Second Amendment to License Agreement with Novartis Pharma AG
10.29(q) Secured Note Purchase Agreement
10.30(q) Form of Secured Promissory Note
10.31(q) Security Agreement
10.32#(r) Employment Agreement with James G. Cullem
10.33#(r) Employment Agreement with Joan Brown
10.34(t) Letter Agreement with 3i, LP dated December 8, 2022
10.35(t) Letter Agreement with 3i, LP dated January 23, 2023
10.36+(s) Form of Securities Purchase Agreement Series C Preferred Stock
10.37(s) Form of Registration Rights Agreement
10.38(s) Limited Waiver Agreement
10.39(aa) Form of Securities Purchase Agreement (April Offering)
10.40(y) Form of Lock-Up Agreement (April Offering)
10.41(z) First Amendment to Secured Note Purchase Agreement
10.42(z) First Amendment to Security Agreement
10.43(z) Form of Secured Promissory Note (2023)
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10.44(aa) Secured Promissory Note
10.45(aa) Modification and Exchange Agreement
10.46(aa) Cancellation of Debt Agreement
10.47(aa) First Amendment to Registration Rights Agreement
10.48(aa) Limited Waiver Agreement
10.49(bb) Amendment to Modification and Exchange Agreement
10.50(ee) Form of Securities Purchase Agreement
10.51(bb) Fourth Amendment to the Exclusive License Agreement with Eisai, Inc.
10.52(ee) Third Amendment to the Exclusive License Agreement with Eisai, Inc.
10.53(ee) Form of Limited Waiver and Amendment Agreement
10.54(ee) 3i, LP – Limited Waiver and Amendment Agreement
10.55(dd) June 2023 Secured Note Purchase Agreement
10.56(dd) Security Agreement
10.57(dd) Secured Promissory Note
10.58(ee) Form of Lock-Up Agreement
10.59(gg) Form of Inducement Letter
10.60(gg) Limited Waiver between the Company and 3i, LP
10.61(nn) Form of Securities Purchase Agreement
10.62(mm) Form of Lock-Up Agreement
10.67(oo) Amendment to Senior Convertible Notes
10.68(ss) Consulting Agreement (James G. Cullem)
10.71(uu) Management Services Agreement, effective as of June 1, 2024
10.74 Fifth Amendment to Exclusive License Agreement with Eisai, Inc.
10.75(pp) Sixth Amendment to Exclusive License Agreement with Eisai, Inc.
19 Policy on Insider Trading
21(xx) Subsidiaries of the Registrant
97(xx) Allarity Therapeutics, Inc. Clawback Policy
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
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(j) Incorporated by reference from Form 8-K filed with the SEC on May 6, 2022.
(k) Incorporated by reference from Form 10-K filed with the SEC on May 17, 2022.
(l) Incorporated by reference from Form 8-K filed with the SEC on June 10, 2022.
(m) Incorporated by reference from Form 8-K filed with the SEC on July 11, 2022.
(bb) Incorporated by reference from Form 8-K filed with the SEC on June 1, 2023.
(hh) Incorporated by reference from Form 8-K filed on September 27, 2023.
(ii) Incorporated by reference from Form S-1 filed on October 30, 2023.
(ss) Incorporated by reference from Form 8-K filed with the SEC on May 14, 2024.
(tt) Incorporated by reference from Form 8-K filed with the SEC on May 21, 2024.
(uu) Incorporated by reference from Form 8-K filed with the SEC on June 6, 2024.
* Furnished herewith.
# Indicates a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary.
None.
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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/ Thomas H. Jensen
Name: Thomas H. Jensen
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/ Thomas H. Jensen Chief Executive Officer and Director March 31, 2025
Thomas H. Jensen (Principal Executive Officer)
/s/ Alexander Epshinsky Chief Financial Officer March 31, 2025
Alexander Epshinsky (Principal Financial Officer)
/s/ Gerald W. McLaughlin Chairman of the Board March 31, 2025
Gerald W. McLaughlin
/s/ Joseph W. Vazzano Director March 31, 2025
Joseph W. Vazzano
/s/ Laura E. Benjamin Director March 31, 2025
Laura E. Benjamin
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 392) F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations and Comprehensive Loss F-4
Consolidated Statements of Cash Flows F-7 – F-8
Notes to Consolidated Financial Statements F-9 – F-9
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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 sheets of Allarity Therapeutics, Inc. (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in redeemable convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, 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, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
/s/ Wolf & Company, P.C.
We have served as the Company’s auditor since 2022.
Boston, MA
March 31, 2025
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2024 and 2023
(in thousands, except for share and per share data*)
December 31, December 31,
ASSETS
Current assets:
Receivables from ATM sales 1,416 —
Non-current assets:
Property, plant and equipment, net 309 20
Intangible assets — 9,871
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accrued expenses and other current liabilities 5,232 1,309
Warrant derivative liability 1 3,083
Income taxes payable 74 59
Convertible promissory note and accrued interest 1,350 1,300
Non-current liabilities:
Deferred tax — 446
Commitments and contingencies (Note 16)
Stockholders’ equity (deficit)
Accumulated other comprehensive loss (354 ) (411 )
Total stockholders’ equity (deficit) 11,811 (2,751 )
Total liabilities and stockholders’ equity (deficit) $ 22,650 $ 11,862
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the years ended December 31, 2024 and 2023
(in thousands, except for share and per share data*)
Operating expenses:
Impairment of intangible assets 9,703 —
Other income (expense)
Interest expenses (653 ) (498 )
Foreign exchange gains (losses) (212 ) 133
Fair value of inducement warrants — (4,189 )
Loss on modification of warrants — (591 )
Change in fair value adjustment of warrant derivative liabilities 2,677 10,434
Loss before income tax expense (benefit) (24,896 ) (11,818 )
Income tax expense (benefit) (381 ) 83
Deemed dividends on Series A Preferred Stock (299 ) (8,392 )
Deemed dividend on Series A Convertible Preferred Stock (562 ) —
Gain on extinguishment of Series A Convertible Preferred Stock 222 —
Deemed dividend of on Series C Preferred Stock — (123 )
Net loss attributable to common stockholders $ (25,154 ) $ (20,416 )
Net loss per common share, basic and diluted $ (15.65 ) $ (6,031.31 )
Weighted average common shares outstanding, basic and diluted 1,606,989 3,385
Other comprehensive loss
Change in cumulative translation adjustment 57 310
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
For the years ended December 31, 2024 and 2023
(in thousands, except for share data*)
Accumulated Total
Series A Series B Series C Convertible Series A Additional Other Stockholders’
Redemption of Series B Preferred Stock — — (190,786 ) (2 ) — — — — — — 2 — — 2
Cashless exercise of Exchange Warrants — — — — — — — — 833 — 1,031 — — 1,031
Stock-based compensation expense — — — — — — — — — — 71 — — 71
Currency translation adjustment — — — — — — — — — — — 310 — 310
Net loss — — — — — — — — — — — — (11,901 ) (11,901 )
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
For the years ended December 31, 2024 and 2023
(in thousands, except for share data*)
Series A Convertible Series A Accumulated Total
Redeemable Convertible Additional Other Stockholders’
Number Value Number Value Number Value Capital Loss Deficit (Deficit)
Extinguishment of preferred stock — — — (222 ) — — 222 — — —
Deemed dividend on preferred stock — — — 299 — — (299 ) — — —
Common stock issued for services — — — — 147,878 — 336 — — 336
Reverse split (1-for-30) rounding adjustment — — — — 97,216 (3 ) 3 — — —
Stock-based compensation expense (recoveries) — — — — — — 71 — — 71
Cashless exercise of 3i Exchange Warrants — — — — 78,656 — 405 — — 405
Deemed dividend on redeemable preferred stock — 562 — — — — (562 ) — — —
Currency translation adjustment — — — — — — — 57 — 57
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2024 and 2023
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net loss to net cash used in operating activities:
Depreciation and amortization 9 37
Intangible asset impairment 9,703 —
Common stock issued for services 336 —
Stock-based compensation expense (recovery) 71 (71 )
Unrealized foreign exchange gain (126 ) (179 )
Non-cash interest expense 230 464
Non-cash finance expense — 1,110
Fair value of inducement warrants — 4,189
Loss on modification of warrants — 591
Change in fair value of warrant derivative liabilities (2,677 ) (10,434 )
Deferred income taxes (446 ) 97
Changes in operating assets and liabilities:
Unearned revenue 207 —
Tax credit receivable 45 (26 )
Income taxes payable 15 18
Operating lease liability — (8 )
Net cash used in operating activities (17,352 ) (12,745 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (298 ) —
Net cash used in investing activities (298 ) —
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Series C Convertible Preferred Stock issuance, net — 1,160
Proceeds from ATM sales of common stock, net of issuance costs 37,354 —
Net proceeds from common stock and pre-funded warrant issuance — 16,895
Redemption of Series A Preferred Stock — (6,652 )
Redemption of Series B Preferred Stock — (2 )
Redemption of Convertible Redeemable Series A Preferred Stock (3,500 ) —
Net cash provided by financing activities 36,792 10,995
Net increase (decrease) in cash 19,142 (1,750 )
Effect of exchange rate changes on cash 225 (113 )
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont.)
For the years ended December 31, 2024 and 2023
(in thousands)
Supplemental disclosure of cash flow information
Cash paid for income taxes $ — $ 6
Cash paid for interest $ 423 $ 34
Supplemental disclosure of non-cash investing and financing activities:
Stock issued in conjunction with consulting agreement $ 90 $ —
Issuance of common shares on conversion of 3i Exchange Warrants $ 405 $ —
Issuance of Series A Preferred Stock to extinguish 3i Promissory Note $ — $ 453
Redemption of Series A Preferred Stock as repayment of debt $ — $ 1,445
Deemed dividends on Series A Preferred Stock $ 299 $ 8,392
Gain on extinguishment of Series A Preferred Stock $ 222 $ —
Deemed dividend on Convertible Redeemable Series A Preferred Stock $ 562 $ —
See accompanying notes to the consolidated financial statements.
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ALLARITY THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2024 and 2023
(in thousands, except for share and per share data and where otherwise noted)
1. Organization and Description of Business
Allarity Therapeutics, Inc. and Subsidiaries (the “Company”) is a clinical stage pharmaceutical company that develops drugs for the personalized treatment of cancer using drug specific companion diagnostics 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.
The Company’s principal operations are located at Venlighedsvej 1,2970 Horsholm, Denmark. The Company’s business address in the Unites States is located at 24 School Street, 2nd Floor, Boston, MA 02108.
Liquidity
The Company has incurred significant losses and has an accumulated deficit of $119.0 million. Since inception, the Company's operations have been funded primarily through proceeds received from its collaboration arrangements, sale of equity and debt securities, and the proceeds from the exercise of warrants. The Company has incurred losses from operations and negative cash flows from operating activities since inception and expects to continue to incur substantial losses for the next several years as it continues to fully develop and prepare regulatory filings and obtain regulatory approvals for its existing and new product candidates. The Company's estimates its current cash of $19.5 million, based on the Company's current operating plan, is sufficient to enable the Company to fund its activities through at least the next 12 months from the date of this report on Form 10-K.
The Company is subject to industry risks and the expenses associated with any company performing research and development. There is no guarantee that our research and development projects will succeed, that developed products will secure necessary regulatory approvals, or that any approved products will be commercially successful. Furthermore, our industry is characterized by rapid technological advancements, and we heavily rely on the expertise of our employees and consultants. If we fail to achieve profitability or sustain it over time, we may be unable to maintain our operations at current levels and could be forced to scale back our activities.
Reverse Stock Splits
On March 24, 2023, June 28, 2023, April 9, 2024, and September 11, 2024, the Company 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 the shares of common stock of the Company (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, unless otherwise indicated. 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 the Company’s 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.
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2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
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”).
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 Denmark ApS (formerly OV-SPV2 ApS) Denmark
MPI Inc.* United States
OV US Inc.** United States
* In the process of being dissolved because inactive.
** OV US Inc. was dissolved effective November 15, 2023.
All intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.
Use of Estimates
The preparation of consolidated 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, 3i Exchange 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.
Risks and Uncertainties
The Company is subject to risks common to early-stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to clinical effectiveness of products, commercialization of products, regulatory approvals, dependence on key products, key personnel and third-party service providers such as contract research organizations (“CROs”), protection of intellectual property rights, the need and ability to obtain additional financing and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements.
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 at the balance sheet date and the results of operations are translated using the average exchange rate for the year. 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 loss in the consolidated statements of operations and comprehensive loss as incurred. The Company recorded a foreign exchange translation gain of $0.1 million and $0.3 million, included in accumulated other comprehensive loss for the years ended December 31, 2024 and 2023, respectively.
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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.
Cash
The company considers cash equivalents as highly liquid investments with original maturities of three months or less at the date of purchase. The Company had no cash equivalents or restricted cash on December 31, 2024 and 2023.
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 (in years)
Laboratory equipment 5
Furniture and office equipment 3
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, 2024 and 2023, 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.
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.
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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;
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. For the years ended December 31, 2024 and 2023, the Company has recorded impairment losses of $9.7 million and $0 respectively on its intangible assets. As of December 31, 2024, the IPR&D intangible assets have been fully amortized and have a $0 balance.
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 preferred shares, convertible debt, warrant liabilities, and warrant derivative liabilities. The warrant liabilities and derivative liabilities that are freestanding equity-linked financial instruments 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:
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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.
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 operates as a single operating and reporting segment, reflecting our sole focus in developing a treatment for ovarian cancer. Our Chief Executive Officer serves as the Chief Operating Decision Maker (CODM), responsible for assessing the Company's performance and making resource allocation decisions. The CODM evaluates financial information on a consolidated basis, focusing on key metrics such as research and development expense, general and administrative expenses, and other income/expenses. The CODM allocates resources based on the Company's available cash resources, forecasted cash flow, and expenditures on a consolidated basis, as well as an assessment of the probability of success of its research and development activities. Resource allocation decisions are informed by budgeted and forecasted expense information, along with actual expenses incurred to date. The measure of segment assets is reported on the balance sheet as total assets. Disaggregated profit or loss information at the program or functional level is not regularly provided to or relied upon by the CODM, as our integrated operating model emphasizes shared resources and centralized decision-making. The Company operates in two geographic areas: Denmark and the United States.
Research and development expenses
Research and development ("R&D") costs are expensed as incurred. R&D expenses primarily consist of costs associated with preclinical studies and clinical trials as well as salaries, stock-based compensation and benefits, facilities costs and laboratory supplies, 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. The Company has entered into various research and development contracts with companies in Europe, the United States, and other countries.
General and administrative expenses