UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-41160

ALLARITY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		87-2147982
(State or Other Jurisdiction Of Incorporation or Organization)		(I.R.S. Employer Identification Number)

210 Broadway, Suite 201, Cambridge, MA		02139
(Address of Principal Executive Offices)		(Zip Code)

(401) 426-4664

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		ALLR		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 14, 2022, the registrant had 10,260,157 shares of common stock outstanding.

Table of Contents

		Page
	Forward Looking Statements	ii

PART I – FINANCIAL INFORMATION		1

Item 1.	Unaudited Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021	2
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders’ Equity for the nine months ended September 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2022 and 2021	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

PART II – OTHER INFORMATION		38

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39

	Signatures	40

Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “Allarity,” “we,” “us,” “our” and similar terms refer to Allarity Therapeutics, Inc., Allarity Therapeutics A/S (as predecessor) and its respective consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this report other than statements of historical fact are forward-looking statements for purposes of these provisions, including any statements of the Company’s plans and objectives for future operations, the Company’s future financial or economic performance (including known or anticipated trends), and the assumptions underlying or related to the foregoing. Statements that include the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative thereof, or other comparable terminology, are forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” in our Annual Report on Form 10-K (“Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on May 17, 2022. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. You should read these factors and the other cautionary statements made in this report as being applicable to all related forward-looking statements wherever they appear in this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

Any forward-looking statements contained in this Quarterly Report are only estimates or predictions of future events based on information currently available to our management and management’s current beliefs about the potential outcome of future events. Whether these future events will occur as management anticipates, whether we will achieve our business objectives, and whether our revenues, operating results or financial condition will improve in future periods are subject to numerous risks. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss under the heading “Risk Factors” in this Quarterly Report and in other reports filed from time to time with the SEC. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements.

All forward-looking statements and descriptions of risks included in this report are made as of the date hereof based on information available to the Company as of the date hereof, and except as required by applicable law, the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult the risks and other disclosures described in the reports the Company files from time to time with the SEC after the date of this report for updated information.

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands, except for share and per share data)

	September 30, 2022			December 31, 2021
	(Unaudited)
ASSETS
Current assets:
Cash	$	3,946		$	19,555
Other current assets		182			625
Prepaid expenses		491			36
Tax credit receivable		1,442			838
Total current assets		6,061			21,054
Non-current assets:
Investment in Lantern Pharma Inc. stock		—			350
Property, plant and equipment, net		5			8
Operating lease right of use assets		41			86
Intangible assets, net		12,027			28,135
Total assets	$	18,134		$	49,633

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,707		$	698
Accrued liabilities		4,079			8,590
Income taxes payable		83			60
Operating lease liabilities, current		29			98
Derivative liabilities		2,795			—
Warrant liability		1,262			11,273
Total current liabilities		12,955			20,719
Non-current liabilities:
Convertible promissory note and accrued interest, net		1,057			979
Operating lease liabilities, net of current portion		—			9
Deferred tax		619			1,961
Derivative liabilities		—			7,181
Total liabilities		14,631			30,849
Commitments and contingencies (Note 19)
Redeemable convertible preferred stock
Series A Convertible Preferred stock $0.0001 par value (500,000 shares authorized) shares issued and outstanding at September 30, 2022 and December 31, 2021 were 15,226 and 19,800, respectively		2,056			632
Stockholders’ equity
Common stock, $0.0001 par value (30,000,000 shares authorized) shares issued and outstanding at September 30, 2022 and December 31, 2021 were 10,260,157 and 8,096,014, respectively		1			1
Additional paid-in capital		83,029			85,243
Accumulated other comprehensive loss		(1,871	)		(600	)
Accumulated deficit		(79,712	)		(66,492	)
Total stockholders’ equity		1,447			18,152
Total liabilities, redeemable convertible preferred stock and stockholders’ equity	$	18,134		$	49,633

See accompanying notes to condensed consolidated financial statements.

ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(U.S. dollars in thousands, except for share and per share data)

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Operating expenses:
Research and development	$	3,004		$	1,355		$	5,989		$	4,674
Impairment of intangible assets		—			—			14,007			—
General and administrative		1,558			2,619			7,717			6,140
Total operating expenses		4,562			3,974			27,713			10,814
Loss from operations		(4,562	)		(3,974	)		(27,713	)		(10,814	)
Other income (expenses)
Income from sale of IP		—			1,000			1,780			1,000
Interest income		14			28			19			—
Interest expense		(35	)		(27	)		(107	)		(238	)
Finance expense		—			—			—			(393	)
Loss on investment		(45	)		(137	)		(115	)		(317	)
Foreign exchange gains (losses)		(406	)		9			(944	)		(71	)
Change in fair value adjustment of derivative and warrant liabilities		2			1,785			13,442			1,715
Penalty on Series A Preferred stock liability		—			—			(800	)		—
Loss on extinguishment of convertible debt		—			—			—			(474	)
Change in fair value of convertible debt		—			—			—			(141	)
Other income (expense), net		(470	)		2,658			13,275			1,081
Net loss for the period before tax expense		(5,032	)		(1,316	)		(14,438	)		(9,733	)
Income tax benefit (expense)		(5	)		(35	)		1,218			(98	)
Net loss		(5,037	)		(1,351	)		(13,220	)		(9,831	)
Deemed dividend of 8% on Preferred stock		—			—			(1,572	)		—
Cash obligations on converted Series A Preferred stock		(1,646	)		—			(3,157	)		—
Net loss attributable to common stockholders	$	(6,683	)	$	(1,351	)	$	(17,949	)	$	(9,831	)

Basic and diluted net loss per common stock	$	(0.68	)	$	(0.17	)	$	(1.98	)	$	(1.70	)
Weighted-average number of common stock outstanding, basic and diluted		9,871,413			7,753,051			9,064,644			5,779,681
Other comprehensive loss, net of tax:
Net loss	$	(5,037	)	$	(1,351	)	$	(13,220	)	$	(9,831	)
Change in cumulative translation adjustment		(643	)		(1,101	)		(1,271	)		(1,785	)
Change in fair value attributable to instrument specific credit risk		—			—			—			(9	)
Comprehensive loss attributable to common stockholders	$	(5,680	)	$	(2,452	)	$	(14,491	)	$	(11,625	)

See accompanying notes to condensed consolidated financial statements.

ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)

(U.S. dollars in thousands, except for share data)

	Series A Convertible Preferred Stock				Common Stock				Additional Paid in			Obligation to Issue			Accumulated Other Comprehensive			(Accumulated			Total Stockholder’
	Shares		Amount		Shares		Amount		Capital			Shares			Income			Deficit)			Equity
Balance, December 31, 2020		—	$	—		4,252,021	$	1	$	62,907		$	—			1,375		$	(39,844	)	$	24,439
Debt conversion						528,810		—		2,384			—			—			—			2,384
Stock based compensation		—		—		—		—		195			—			—			—			195
Currency translation adjustment		—		—		—		—		—			—			(459	)		—			(459	)
Fair value of instrument specific Credit risk		—		—		—		—		—			—			(6	)		—			(6	)
Net loss		—		—		—		—		—			—			—			(3,085	)		(3,085	)
Balance, March 31, 2021		—		—		4,780,831		1		65,486			—			910			(42,929	)		23,468
Debt conversion						99,383		—		496			—			—			—			496
Units issued for cash		—		—		2,417,823				12,109			—			—			—			12,109
Warrants exercised for cash		—		—		5,433		—		16			—			—			—			16
Fair value of investor warrants (TO3)		—		—		—		—		(2,000	)		—			—			—			(2,000	)
Share issuance costs		—		—		—		—		(2,384	)		2,384			—			—			0
Stock based compensation		—		—		—		—		433			—			—			—			433
Cumulative translation adjustment						—		—		—			—			(300	)		—			(300	)
Fair value of instrument specific credit risk		—		—		—		—		—			—			(3	)		—			(3	)
Net loss		—		—		—		—		—			—			—			(5,396	)		(5,396	)
Balance, June 30, 2021		—		—		7,303,470		1		74,156			2,384			607			(48,325	)		28,823
Shares issued for cash on exercise of warrants		—		—		290,104		—		3,246						—			—			3,246
Units issued for share issuance costs		—		—		482,250		—		2,384			(2,384	)		—			—			—
Share issuance costs		—		—						(608	)											(608	)
Stock based compensation		—		—						577												577
Cumulative translation adjustment		—		—		—		—		—			—			(1,026	)		—			(1,026	)
Net loss		—		—		—		—		—			—			—			(1,351	)		(1,351	)
Balance, September 30, 2021		—		—		8,075,824	$	1	$	79,755		$	—		$	(419	)	$	(49,676	)	$	29,661

ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)

(U.S. dollars in thousands, except for share data)

	Series A Convertible Preferred Stock						Common Stock				Additional Paid in			Accumulated Other Comprehensive			(Accumulated			Total Stockholders’
	Shares			Amount			Shares		Amount		Capital			Income			Deficit)			Equity
Balance, December 31, 2021		19,800		$	632			8,096,014	$	1	$	85,243		$	(600	)	$	(66,492	)	$	18,152
Conversion of preferred stock into common stock		(1,973	)		(62	)		746,276		—		62			—			—			62
Floor price liability		—			—			—		—		(133	)		—			—			(133	)
Reclassification of derivative liabilities related to converted preferred stock		—			—			—		—		452			—			—			452
Deemed dividend of 8% on preferred stock		—			1,572			—		—		(1,572	)		—			—			(1,572	)
Stock based compensation		—			—			—		—		1,065			—			—			1,065
Currency translation adjustment		—			—			—		—		—			(214	)		—			(214	)
Net loss		—			—			—		—		—			—			(3,080	)		(3,080	)
Balance, March 31, 2022		17,827			2,142			8,842,290		1		85,117			(814	)		(69,572	)		14,732
Conversion of preferred stock into common stock		(809	)		(26	)		441,005		—		26			—			—			26
Floor price liability		—			—			—		—		(1,377	)		—			—			(1,377	)
Reclassification of derivative liabilities related to converted preferred stock		—			—			—		—		161			—			—			161
Stock based compensation, net		—			—			—		—		(59	)		—			—			(59	)
Currency translation adjustment		—			—			—		—		—			(414	)		—			(414	)
Net loss		—			—			—		—		—			—			(5,103	)		(5,103	)
Balance, June 30, 2022		17,018		$	2,116			9,283,295		1		83,868			(1,228	)		(74,675	)		7,966
Conversion of preferred stock into common stock		(1,792	)		(60	)		976,862		—		60			—			—			60
Floor price liability		—			—			—		—		(1,646	)		—			—			(1,646	)
Reclassification of derivative liabilities related to converted preferred stock		—			—			—		—		341			—			—			341
Stock based compensation		—			—			—		—		406			—			—			406
Currency translation adjustment		—			—			—		—		—			(643	)		—			(643	)
Net loss		—			—			—		—		—			—			(5,037	)		(5,037	)
Balance, September 30, 2022		15,226		$	2,056			10,260,157	$	1	$	83,029		$	(1,871	)	$	(79,712	)	$	1,447

See accompanying notes to condensed consolidated financial statements.

ALLARITY THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(U.S. dollars in thousands)

	Nine months ended September 30,
	2022			2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(13,220	)	$	(9,831	)
Adjustments to reconcile net loss to net cash used in operating activities:
Proceeds from sale of IP		(1,780	)		(1,000	)
Penalty on Series A Preferred stock liability		800			—
Depreciation and amortization		58			90
Intangible asset impairment		14,007			—
Stock-based compensation		1,412			1,205
Unrealized foreign exchange loss		145			71
Non-cash finance expense		—			393
Non-cash interest		135			148
Loss on investment		115			317
Change in fair value adjustment of convertible debt		—			474
Loss on extinguishment of convertible debt		—			141
Change in fair value adjustment of warrant and derivative liabilities		(13,442	)		(1,715	)
Deferred income taxes		(1,342	)		146
Changes in operating assets and liabilities:
Other current assets		388			(97	)
Tax credit receivable		(787	)		(589	)
Prepaid expenses		(502	)		49
Accounts payable		4,483			(1,378	)
Accrued liabilities		(4,786	)		1,107
Income taxes payable		23			—
Operating lease liability		(78	)		(98	)
Net cash used in operating activities		(14,371	)		(10,567	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of IP		809			1,000
Net cash provided by investing activities		809			1,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit		—			(84	)
Cash paid in connection with conversion of Series A Preferred Stock		(1,511	)		—
Penalty on Series A preferred stock liability		(800	)		—
Proceeds from common share issuance		—			14,874
Proceeds from exercised warrants		—
Common share issuance costs		—			(620	)
Proceeds from convertible loan		—			1,200
Loan proceeds		—			2,945
Repayment of loan		—			(2,934	)
Net cash (used in) provided by financing activities		(2,311	)		15,381
Net increase (decrease) in cash		(15,873	)		5,814
Effect of exchange rate changes on cash		264			(528	)
Cash, beginning of period		19,555			298
Cash, end of period	$	3,946		$	5,584
Supplemental information
Cash paid for income taxes	$	1		$	49
Cash paid for interest	$	20		$	471
Supplemental disclosure of non-cash investing and financing activities:
Offset of payable against receivable from sale of IP	$	971		$	—
Conversion of Series A Convertible Preferred stock to equity	$	1,103		$	—
Deemed 8% dividend on Series A Preferred shares	$	1,572		$	—
Conversion of convertible debt to common shares	$	—		$	2,825
Conversion of investor warrants	$	—		$	206
Conversion of derivative liability to equity	$	—		$	483
Non-cash share issuance costs	$	—		$	2,384
Common shares issued to settle accounts payable	$	—		$	55
Right of use asset modification	$	—		$	145

See accompanying notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(U.S. dollars in thousands, except for share and per share data and where otherwise noted)

Organization, Principal Activities, and Basis of Presentation

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 (cDx) generated by its proprietary drug response predictor technology, DRP^®. Additionally, the Company, through its Danish subsidiary, Allarity Therapeutics Europe ApS (previously Oncology Venture Product Development 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 United States operations are located at 210 Broadway #201, Cambridge, MA 012139, United States of America.

(a)

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Pursuant to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date of these financial statements, and (1) is probable that the plan will be effectively implemented within one year after the date the financial statements are issued, and (2) it is probable that the plan, when implemented, will mitigate the relevant condition or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financials are issued. Certain elements of the Company’s operating plan to alleviate the conditions that raise substantial doubt are outside of the Company’s control and cannot be included in management’s evaluation under the requirements of Accounting Standard Codification (ASC) 205-40.

Since inception, the Company has devoted substantially all its efforts to business planning, research and development, clinical expenses, recruiting management and technical staff, and securing funding via collaborations. The Company has historically funded its operations with proceeds received from its collaboration arrangements, sale of equity capital and proceeds from sales of convertible notes.

The Company has incurred significant losses and has an accumulated deficit of $79.7 million as of September 30, 2022. Our current cash position is insufficient to fund our current operating plan and planned capital expenditures for the next 12 months. These conditions give rise to substantial doubt over the Company’s ability to continue as a going concern.

Management’s plans to mitigate the conditions or events that raise substantial doubt include additional funding through public equity, private equity, debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable terms. The Company’s failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on its business, results of operations and financial condition and its ability to develop its product candidates.

Although management continues to pursue its funding plans, there is no assurance that the Company will be successful in obtaining sufficient funding to fund continuing operations on terms acceptable to the Company, if at all. Accordingly, based upon cash on hand at the issuance date of these financial statements the Company does not have sufficient funds to finance its operations for at least twelve months from the issuance date and therefore has concluded that substantial doubt exists about the Company’s ability to continue as a going concern.

(b)

Basis of Presentation

The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) as established by the Financial Accounting Standards Board (the “FASB”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The accompanying unaudited condensed interim consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated balance sheet, results of operations and comprehensive loss, statements of changes in redeemable convertible preferred stock and stockholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2022. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2021, and 2020 thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 17, 2022.

The preparation of these unaudited condensed interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The results of operations and cash flows for the interim periods included in these condensed consolidated financial statements are not necessarily indicative of the results to be expected for any future period or the entire fiscal year.

These condensed consolidated financial statements and notes do not include all disclosures required by U.S. GAAP and should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes.

(c)

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

Name		Country of Incorporation
Allarity Acquisition Subsidiary Inc.		United States
Allarity Therapeutics Europe ApS (formerly Oncology Venture Product Development ApS)		Denmark
Allarity Therapeutics Denmark ApS (formerly OV-SPV2 ApS)		Denmark
MPI Inc.		United States
Oncology Venture US Inc.		United States

All intercompany transactions and balances have been eliminated upon consolidation.

(d)

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including but not limited to, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The extent of the impact and effects of the coronavirus (COVID-19) on the operation and financial performance of the Company’s business will depend on future developments, including the duration and spread of the outbreak and varying virus mutations, related travel advisories and restrictions, the recovery time of disrupted research services, the consequential staff shortages, and research and development delays, or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of which are highly uncertain and cannot be predicted. If the Company’s operations are impacted by the outbreak for an extended period, the Company’s results of operations or liquidity may be materially adversely affected.

(e)

Impact of the Russia-Ukraine War

There have been immense flows of refugees to Europe and Denmark is ready to facilitate and to accept refugees from the Ukraine. It is far too early to estimate how many migrants Denmark will facilitate, but immigration officials have begun preparing to accept Ukrainian refugees. Being a North Atlantic Treaty Organization (NATO) member, Denmark will strengthen its own national preparedness as well as that of the NATO defense alliance. The Ukraine crisis has not yet had an impact on our results of operations however we expect it may have an impact on the costs of materials we purchase for our laboratory operations in Denmark but, we cannot predict the impact now.

(f)

Reclassification

Certain amounts in prior periods financial statements have been reclassified to conform to current period presentation.

Summary of Significant Accounting Policies

(a)

Use of Estimates and Assumptions

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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting years. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the fair value of the Series A preferred shares, warrants, convertible debt, and the accrual for research and development expenses, fair values of acquired intangible assets and impairment review of those assets, share based compensation expense, and income tax uncertainties and valuation allowances. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed considering reasonable changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known and if material, their effects are disclosed in the notes to the condensed consolidated financial statements. Actual results could differ from those estimates or assumptions.

(b)

Foreign currency and currency translation

The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. The Company and its subsidiaries operate mainly in Denmark and the United States. The functional currencies of the Company’s subsidiaries are their local currency.

The Company’s reporting currency is the U.S. dollar. The Company translates the assets and liabilities of its Denmark subsidiaries into the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the condensed consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity as a component of accumulated other comprehensive (loss).

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate translations are included in other comprehensive income (loss) in the consolidated statements of operations and comprehensive loss as incurred

(c)

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.

(d)

Cash

Cash consists primarily of highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents or restricted cash on September 30, 2022 and December 31, 2021.

(e)

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.

(f)

Accumulated other comprehensive loss

Accumulated other comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. The Company records unrealized gains and losses related to foreign currency translation and instrument specific credit risk as components of other accumulated comprehensive loss in the Condensed Consolidated Statements of Operations and Comprehensive Loss. During the three months ended September 30, 2022 and 2021, the Company recorded accumulated foreign currency translation losses of ($643) and ($1,101) respectively; and instrument specific credit risk losses of $0 and $0 respectively. During the nine months ended September 30, 2022 and 2021, the Company recorded accumulated foreign currency translation losses of ($1,271) and ($1,785) respectively; and instrument specific credit risk losses of $0 and ($9) respectively.

(g)

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as general and administrative expense within the condensed consolidated statements of operations and comprehensive loss.

(h)

JOBS Act accounting election

The Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies; however, the Company may adopt new or revised accounting standards early if the standard allows for early adoption.

(i)

Recently adopted accounting pronouncements

In May 2021, the FASB issued ASU No. 2021-04 — Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options — to clarify the accounting by issuers for modifications or exchanges of equity-classified written call options. The framework applies to freestanding written call options, such as warrants, that were and remain equity classified by the issuer after the modification and are not in the scope of another Codification Topic. The framework applies regardless of whether the modification is through an amendment to the existing terms or issuance of a replacement warrant. The effect of the modification of the warrant is measured as the difference in its fair value immediately before and after the modification. The effect is recognized in the same manner as if cash had been paid as consideration. Additionally, other modifications may need to be accounted for as a cost to the issuing entity based on the substance of the transaction. The Company is required to apply the amendments within this ASU prospectively to modifications or exchanges occurring on or after the effective date of the amendment. The Company adopted this ASU on January 1, 2022, with no significant impact on its condensed consolidated financial statements and related disclosures.

In November 2021, the FASB issued ASU 2021-10 — Government Assistance — Disclosures by Business Entities about Government Assistance — to require disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about (1) the types of transactions, (2) the accounting for the transactions, and (3) the effect of the transactions on an entity’s financial statements. The ASU is effective prospectively or retrospectively for annual periods beginning after December 15, 2021, with early adoption permitted. The Company adopted this ASU on January 1, 2022, with no significant impact on its condensed consolidated financial statements and related disclosures.

(j)

Recently Issued Accounting Pronouncements

Changes to GAAP are established the FASB in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification. The Company considers the applicability and impact of all ASUs. All other ASUs issued through the date of these financial statements were assessed and determined not to be applicable or are expected to have minimal impact on the Company’s condensed consolidated financial position and results of operations.

Other Current Assets

The Company’s other current assets are comprised of the following:

	September 30, 2022		December 31, 2021
Deposits	$	47	$	53
Salary deposit		84		65
Value added tax (“VAT”) receivable		46		507
Other		5		—
Net other current assets	$	182	$	625

Prepaid Expenses

	September 30, 2022		December 31, 2021
Prepaid insurance	$	409	$	14
Other prepayments		83		22
	$	491	$	36

Investment

The Company owned 43,898 common shares in Lantern Pharma Inc. (“Lantern Pharma”) because of a prior license agreement made with Lantern Pharma in 2017. During September 2020 Lantern Pharma became publicly listed. During July 2022, the Company sold its 43,898 common shares in Lantern Pharma in exchange for net proceeds of $235 and recognized a loss of $115.

	September 30,			December 31,
	2022			2021
Opening balance	$	350		$	845
Less receipt of sale proceeds, net		(235	)		—
Loss recognition		(115	)		(495	)
Ending balance	$	—		$	350

Property, plant and equipment, net

Property, plant and equipment, net consisted of the following:

	September 30, 2022			December 31, 2021
Laboratory equipment	$	329		$	336
Less: accumulated depreciation		(324	)		(328	)
	$	5		$	8

Depreciation expense for property, plant and equipment and right of use assets for the nine months ended September 30, 2022, and September 30, 2021 was $58 and $90 respectively.

Intangible assets

Intangible assets, net of accumulated amortization, impairment charges and adjustments are summarized as follows:

	IPR&D Assets
Opening balance, December 31, 2021	$	28,135
Impairment recognized during the period		(14,007	)
Foreign translation adjustment		(2,101	)
Ending balance, September 30, 2022	$	12,027

	IPR&D Assets			Acquired Patents
Opening balance, December 31, 2020	$	35,896		$	78
Impairment recognized during the year		(7,761	)		—
Accumulated amortization		—			(78	)
Ending balance, December 31, 2021	$	28,135		$	—

As a result of both the Company’s February 15, 2022, receipt of a Refusal to File (“RTF”) from the U.S. Food and Drug Administration regarding the Company’s new drug application (“NDA”) for Dovitinib, and the current depressed state of the Company’s stock price, the Company performed an impairment assessment on its individual intangible assets during the period ended March 31, 2022 utilizing a discounted cash flow model with a weighted average cost of capital (“WACC”) of 16%, and recognized an impairment charge of $14,007 during the three month period ended March 31, 2022. The Company has further assessed the fair value of its intangible assets at June 30, 2022 and September 30, 2022 and determined that no further impairment is warranted as of those dates. Individual material development projects in progress are as follows:

	September 30,		December 31,
	2022		2021
Stenoparib	$	12,027	$	25,407
Dovitinib		—		2,728
Total	$	12,027	$	28,135

Accrued liabilities

The Company’s accrued liabilities are comprised of the following:

	September 30,		December 31,
	2022		2021
3i LP floor price liability	$	1,646	$	—
Milestone liabilities		1,400		—
Consultants		200		—
Development cost liability		83		6,750
Payroll accruals		412		1,088
Accrued Board member fees		70		54
Accrued audit and legal		265		316
Other		3		382
	$	4,079	$	8,590

9. Convertible promissory note

On April 12, 2022, Allarity Therapeutics Denmark ApS (formerly OV-SPV2 ApS) (“Allarity Denmark” or “OV-SPV2 ApS”), a subsidiary of Allarity Therapeutics Europe ApS (“Allarity Europe”), which is a wholly-owned subsidiary of Allarity Therapeutics, Inc., re-issued a Convertible Promissory Note (the “Promissory Note”) to Novartis Pharma AG, a company organized under the laws of Switzerland (“Novartis,” and together with Allarity Europe, the “License Parties”) in the principal amount of $1,000. The Promissory Note was re-issued pursuant to the First Amendment to License Agreement, with an effective date of March 30, 2022 (the “First Amendment”), entered into by and between the License Parties, which amended the License Agreement dated April 6, 2018 (the “Original Agreement”) previously entered into by the License Parties relating to the Compound (as defined in the Original Agreement).

In consideration of the licenses and rights granted, Allarity Europe paid Novartis a one-time, non-refundable, non-creditable upfront payment consisting of $1,000 (“Upfront Payment”) and issued to Novartis a Promissory Note with an initial principal balance equal to $1,000, which Allarity Europe caused its affiliate, OV-SPV2, to issue to Novartis. In accordance with the terms of the Promissory Note, all payments shall be applied first to accrued interest, and thereafter to principal. The outstanding principal amount of the Promissory Note, plus any accrued interest thereon, shall be due and payable on the earlier to occur of: (i) the seventh (7th) anniversary of April 6, 2018; and (ii) an event of default (the “Maturity Date”).

The Promissory Note pays simple interest on the outstanding principal amount from the date until payment in full, which interest shall be payable at the rate of five percent (5%) per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. The entire outstanding principal balance of the Promissory Note and all accrued interest shall be fully due and payable on the Maturity Date. The Promissory Note is convertible upon an initial public offering (“IPO”) of OV-SPV2 and allows Novartis a one-time right to exchange the Promissory Note for such number of equity securities of OV-SPV2 equal to three percent (3%) of OV-SPV2’ outstanding equity securities, calculated on a fully diluted as-converted to common stock basis, held by all holders of equity securities of OV-SPV2 immediately prior to the closing of the IPO.

As the Promissory Note was assumed in connection with the 2018 Merger, the Company recognized the Promissory Note and related accrued interest at its fair value, based upon an equivalent market interest rate of 12.875%, of approximately $787 on December 31, 2019, and recognized interest expense of $93 and $99 in the years ended December 31, 2020 and 2021 respectively and a corresponding increase in liability, resulting in a net liability of $979 and $880 at each of December 31, 2021 and December 31, 2020 respectively. The Company will measure the Promissory Note at amortized cost in subsequent reporting periods.

The Company evaluated the Promissory Note under ASC 480 and ASC 815 and the identified embedded features inclusive of: (1) conversion upon an IPO; (2) mandatory redemption upon a change of control; and (3) mandatory redemption in the event of default; to determine if bifurcation is required pursuant to ASC 815-15-25-1. The Promissory Note is a freestanding instrument that is convertible into shares of the OV-SPV2 ApS’ common (or preferred, as the case may be) equity. The Promissory Note was not issued in conjunction with any other instrument meaning that the Promissory Note meets the definition of a freestanding instrument. Since the conversion feature meets the definition of a derivative it was evaluated for bifurcation and management determined the conversion feature requires bifurcation but because the value is not material the conversion feature has not been bifurcated at this time. The Company will continue to monitor for changes in specific facts and circumstances which may impact the conclusions reached herein.

During the nine-month periods ended September 30, 2022 and 2021, the Company recorded $78 and $74 respectively to interest expense and increased the convertible promissory note liability by the same amount. The roll forward of the Promissory Notes as of September 30, 2022 and December 31, 2021, is as follows:

	September 30, 2022			December 31, 2021
Convertible promissory note	$	1,000		$	1,000
Less debt discount, opening		(215	)		(263	)
Plus, accretion of debt discount, interest expense		40			48
Convertible promissory note, net of discount		825			785
Interest accretion, opening		194			143
Interest accretion, expense		38			51
Ending balance	$	1,057		$	979

10.

Convertible debt

On March 31, 2020 the Company entered into an agreement to issue up to $10,100 (the “Commitment”) to be funded in tranches (“Tranches”) of ten non-interest-bearing notes (“Notes”) convertible into new shares of the Company, each with a value of $1,010; 95% of each Tranche is received in cash, net of a 5% fee, and the conversion price of the Notes is 95% of the lowest closing volume weighted average price as reported by Bloomberg (“VWAP”). The Company accounted for the Notes issued under the FVO election whereby the financial instrument is initially measured at its issue-date estimated fair value and subsequently re-measured at estimated fair value on a recurring basis at each reporting date. The estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed consolidated statements of operations under the caption “change in fair value of convertible debt”.

The Company determined the fair value of the Notes using a discounted cash flow valuation technique with a WACC of 15%. The Company estimates the change in fair value attributable to the instrument specific credit risk of the Notes at 1% under the fair value option and accordingly has recognized a loss of $9 in other comprehensive income during the nine-month period ended September 30, 2021.

The roll forward of the Notes for the period ended September 30, 2021, is as follows:

	September 30, 2021
Opening fair value	$	1,327
Convertible debt issued in the period		1,140
Change in fair value reported in statement operations		474
Foreign exchange		(116	)
Conversion of notes to common stock		(2,825	)
Ending fair value balance at September 30, 2021	$	—

An effective interest rate determines the fair value of the Notes. The notes are unlisted and therefore, they are categorized as Level 3 in accordance with ASC 820, “Fair Value Measurements and Disclosures.” The Notes were fully converted to shares during the period ended September 30, 2021.

11.

Series A Preferred Stock and Common Stock Purchase Warrants

(a) Series A Preferred Stock Terms

On May 20, 2021, we entered into a Securities Purchase Agreement (the “SPA”) with 3i, LP, a Delaware limited partnership (“3i”) for the purchase and sale of 20,000 shares of our Series A Convertible Preferred Stock (the “Preferred Shares”) for $1,000 per share for an aggregate purchase price of $20 million (the “PIPE Investment”) with accompanying common stock purchase warrants (the “3i Warrants”). On December 8, 2021, the Board adopted resolutions to create a series of twenty thousand (20,000) shares of preferred stock, par value $0.0001, designated as “Series A Convertible Preferred Stock.” On December 14, 2021, we filed a Certificate of Designations (the “COD”) setting forth the rights, preferences, privileges and restrictions for 20,000 shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”). On December 20, 2021, we issued 20,000 shares of Preferred Stock at $1,000 per share and a common stock purchase warrant to purchase 2,018,958 shares of common stock at an initial exercise price of $9.9061 to 3i for an aggregate purchase price of $20 million.

All shares of capital stock are junior in rank to all Series A Preferred Stock with respect to the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.

The Series A Preferred Stock has a liquidation preference equal to an amount per Series A Preferred Stock equal to the sum of (i) the Black Scholes Value (as defined in the Warrants, which was sold concurrent with the Series A Preferred Stock) with respect to the outstanding portion of all Warrants held by such holder (without regard to any limitations on the exercise thereof) as of the date of such event and (ii) the greater of (A) 125% of the Conversion Amount of such Series A Preferred Stock on the date of such payment and (B) the amount per share such holder would receive if such holder converted such Series A Preferred Stock into common stock immediately prior to the date of such payment, and will be entitled to convert into shares of common stock at an initial fixed conversion price of $9.9061 per share, subject to a beneficial ownership limitation of 4.99% which can be adjusted to a beneficial ownership limitation of 9.99% upon sixty-one (61) days’ prior written notice.

Under the terms of the COD, the initial fixed conversion price of the Series A Preferred Stock is $9.9061, subject to adjustment. In the event that (i) the average of the VWAP of the Company’s shares for each of the five (5) trading days immediately preceding the date of delivery is less than the fixed conversion price of $9.9061 (a “Price Failure”), or (ii) the sum of (x) the aggregate daily dollar trading volume (as reported on Bloomberg) of our common stock on Nasdaq during the ten (10) trading day period ending on the trading day immediately preceding such date of determination, divided by (y) ten (10), is less than $1,500 (a “Volume Maximum Failure”), each share of Series A Preferred Stock is entitled to convert at a price equal to 90% of the sum of the two (2) lowest VWAPs during the ten (10) trading day period immediately preceding

SEC Form 10-Q filed by Allarity Therapeutics Inc.