Allarity Therapeutics Inc

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Principal Activities and Basis of Presentation

Background

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 Therapeutics Europe ApS (previously Oncology Venture ApS), specializes in the research and development of anti-cancer drugs.

The Company’s principal operations are located at Venlighedsvej1, 2970 Horsholm, Denmark. The Company’s business address in the Unites States is located at24 School Street,2nd Floor, Boston, MA02108.

Liquidity

The accompanying unaudited condensed interim consolidated financial statements (the “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.

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, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern withinone year after the date the accompanying Financial Statements were issued.

As a biopharmaceutical organization, the Company has devoted substantially all of its resources since inception to research and development activities for its Drug Response Predictor “DRP” in conjunction with the Company's product candidate, business planning, raising capital, establishing its intellectual property portfolio, acquiring or discovering new product candidates, and providing general and administrative support for these operations. As a result, the Company has incurred significant operating losses and negative cash flows from operations since its inception and anticipates such losses and negative cash flows will continue for the foreseeable future.

Since inception the Company has funded its operations primarily from sales of its stock. The Company has incurred significant losses and has an accumulated deficit of $111.5 million as of* September 30, 2024*. To date the Company hasnot generated any significant revenues and expects to continue to generate operating losses for the foreseeable future. The Company expects that its existing cash and cash equivalents of $18.5 million as of* September 30, 2024*, will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next12 months from the issuance date of the Financial Statements.

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While the Company believes its capital resources are sufficient to fund the Company’s on-going operations for the next12 months from the issuance date of the Financial Statements, the Company’s liquidity could be materially affected over this period by: (1) its ability to raise additional capital through equity offerings, debt financings, or other non-dilutivethird-party funding; (2) costs associated with new or existing strategic alliances, or licensing and collaboration arrangements; (3) negative regulatory events or unanticipated costs related to the DRP; (4) any other unanticipated material negative events or costs. One or more of these events or costs could materially affect the Company’s liquidity. If the Company is unable to meet its obligations when they become due, the Company* mayhave to delay expenditures, reduce the scope of its research and development programs, or make significant changes to its operating plan. The Financial Statements donot* include any adjustments that might result from the outcome of this uncertainty.

Basis of Presentation

The Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 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 (deficit), 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 thethree andnine months ended* September 30, 2024*, arenot necessarily indicative of the results that* maybe expected for the current fiscal year ending December 31,2024. The financial data presented herein donot include all disclosures required by U.S. GAAP and should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the fiscal year ended December 31, 2023*, thereto included in the Company’s Annual Report on Form10-K, as amended (the “Form10-K”) initially filed with the SEC on* March 8, 2024.*

Use of Estimates

The preparation of Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from these estimates and assumptions.

2. Summary of Significant Accounting Policies

There have beenno new or material changes to the significant accounting policies discussed in the Form10-K for the year ended* December 31, 2023,*that are of significance, or potential significance, to the Company.

Organization and Principles of Consolidation

All intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.

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 stockholders’ equity (deficit) 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 condensed consolidated statements of operations and comprehensive loss as incurred.

Adjustments that arise from exchange rate translations are included in other comprehensive loss in the consolidated statements of operations and comprehensive loss as incurred. During thethree months ended* September 30, 2024and2023*, the Company recorded accumulated foreign currency translation losses of $0.2 million and $0.1 million, respectively. During thenine months ended* September 30, 2024and2023*, the Company recorded accumulated foreign currency translation losses of $0.3 million and $37,000, respectively.

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Concentrations of credit risk and of significant suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company doesnot believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships. The Company hasnot experienced losses on its cash and cash equivalents accounts and management believes, based upon the quality of the financial institutions, that the credit risk regarding these deposits isnot significant. The Company is dependent onthird-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 and cash equivalents

The Company considers all highly liquid investments with a maturity ofthree months or less when purchased to be cash equivalents. The Company maintains deposits primarily in financial institutions, which* mayat times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company hasnot* experienced any losses related to amounts in excess of FDIC limits.

Accumulated other comprehensive loss

Accumulated other comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation and instrument specific credit risk as components of other accumulated comprehensive loss in the condensed consolidated statements of operations and comprehensive loss. During thethree andnine months ended* September 30, 2024* and2023, the Company’s other comprehensive gain was comprised of currency translation adjustments.

Recently Issued Accounting Pronouncements

Changes to U.S. GAAP are established by 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 ASUs issued through the date of the Financial Statements were assessed and determinednot to be applicable or are expected to have minimal impact on the Company’s condensed consolidated financial position and results of operations.

Accounting StandardsNot Yet Adopted**

In* November 2023,the FASB issued ASUNo.* 2023-07, Segment Reporting (Topic280*): Improvements to Reportable Segment Disclosures*, which requires that an entity report segment information in accordance with Topic280, Segment Reporting. The amendment in the ASU is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024.*The Company is currently evaluating the impact of the new standard on its financial statement disclosures.

In* December 2023,the FASB issued ASUNo.* 2023-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*, which expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after* December 15, 2024.*The Company is currently evaluating the impact that this guidance will have on its financial statement disclosures.

In* November 2024,the FASB issued ASUNo.* 2024-03, Income Statement –Reporting Comprehensive Income –Expense Disaggregation Disclosures (Subtopic220*-40): Disaggregation of Income Statement Expenses*, which requires new financial statement disclosures in tabular format, in the notes to financial statements, of specified information about certain costs and expenses. The amendments in this update donot change or remove current expense disclosure requirements. The amendments in this update are effective for fiscal years beginning after* December 15, 2026,and interim periods within fiscal years beginning after December 15, 2027.*Early adoption is permitted. The Company is currently evaluating the impact of the new standard on its financial statement disclosures.

3. Intangible assets

The Company’s IPR&D assets have been classified as indefinite-lived intangible assets. The Company’s individual material development project in progress, stenoparib, is recorded at$0 and $9.8 million on* September 30, 2024*, and* December 31, 2023*, respectively.

The Company has halted enrollment in the ongoing Phase2 trial of stenoparib and is focused on the development of a follow-on trial with FDA regulatory intent. These developments prompted an updated impairment assessment of the Company's intangible assets utilizing a discounted cash flow model with a weighted average cost of capital (“WACC”) of26%. As a result of the updated impairment assessment, the Company recognized an impairment charge of $9.7 million and foreign exchange loss of $0.1 million during thethree months ended* September 30, 2024,withno* comparable expense in2023.

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4. Accrued liabilities

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

5. Convertible promissory note due to Novartis

On* January 26, 2024,the Company 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, the Company ceased all development and commercialization activities with respect to all licensed products, all rights and licenses granted by Novartis to the Company 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. As of September 30, 2024*, the liability is recorded as a current liability on the Company’s condensed unaudited consolidated balance sheets as follows: $3.6 million in accounts payable, $1.3 million convertible promissory notes and accrued interest, net of debt discount, and $0.2 million in accrued liabilities.

6. Convertible senior promissory notes due to3i, LP (“3i”)**

3i Convertible Senior Promissory Notes (2024) (collectively the “2024 Notes”)

During thethree months ended* March 31, 2024,the Company entered into a Securities Purchase Agreement (the “SPA”), as amended, with3i,* pursuant to whichthree senior convertible promissory notes were issued as follows:

The Company agreed to pay interest to3i on the aggregate unconverted and then outstanding principal amount of the2024 Notes at the rate of 8% per annum with interest payments commencingone month after the initial receipt of net proceeds. The interest on each of the2024 Notes is payable in cash or, at the3i’s option, in shares of the Company's common stock, at90% of the lowest VWAP during the previousten trading days that is immediately prior to the interest payment dates. Under the terms of the2024 Notes,3i has the exclusive right to choose whether to receive interest payments in cash or as shares of the Company's common stock.

Redemption

Subject to the provisions of the2024 Notes, if, at any time while the2024 Notes are outstanding, the Company engages inone or more subsequent financings,3i * mayrequire the Company tofirst* use up to100% of the gross proceeds of such financing to redeem all or a portion of the2024 Notes at 105%. However, if the Company were to raise capital in the Sales Agreement (see Note9),3i * may*request up to 20% of the proceeds to redeem the Series A Convertible Preferred Stock (the “Series A Preferred Stock”) at the stated value.

The2024 Notes and accrued interest were redeemed in full and cancelled on* May 6, 2024.*

3i Convertible Secured Promissory Notes (2023)

On* November 22, 2022,the Company entered into a Secured Note Purchase Agreement (“Purchase Agreement”) with3i,* whereby the Company authorized the sale and issuance ofthree Secured Promissory Notes (each a “Note” and collectively, the “Notes”). Effective* November 28, 2022,the Company issued: (1) a Note in the principal amount of $1.7 million as payment of $1.7 million due to3i* in Alternative Conversion Floor Amounts (as defined in the Notes) that began to accrue on* July 14, 2022;and (2) a Note in the principal amount of $0.4 million in exchange for cash. Effective December 30, 2022,*the Company issued an additional Note in the principal amount of $0.7 million in exchange for cash.

Each Note matured on* January 1, 2024,carried an interest rate of 5% per annum, and was secured by all of the Company’s assets pursuant to a security agreement (the “Security Agreement”). In addition, the holder was able to exchange the Notes for the Company’s shares of common stock at an exchange price equal to the lowest price per share of the equity security sold to other purchasers, rounded down to the nearest whole share, if the Company concluded a future equity financing prior to the maturity date or other repayment of such promissory note. Lastly, each Note and interest earned thereon was able to be redeemed by the Company at its option at any time or the holder maydemand redemption if a) the Company obtains gross proceeds of at least $5 million in a financing in an amount of up to 35% of the gross proceeds of the financing or b) there is an Event of Default (as defined in the Note agreement). Discounts to the principal amounts were included in the carrying value of the Notes and amortized to interest expense over the contractual term of the underlying debt. The Company recorded a $34,000 debt discount upon issuance of the Notes related to legal fees paid that were capitalized as debt issuance costs. For thesix* months ended* June 30, 2023,*interest expense totaled $43,000, comprised of $33,000 for contractual interest and $10,000 for the amortization of the debt discount.

The3i Convertible Secured Promissory Notes were paid in full and cancelled on* April 21, 2023.*

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7. Preferred Stock

**** August 2024Series A Convertible Redeemable Preferred Stock**

On* August 19, 2024 (the "Closing Date"), the Company entered into a Securities Purchase Agreement (the “August 2024SPA”) with certain purchasers (the “August 2024Purchasers”), pursuant to which the Company issued and sold, in a private placement (the “August 2024Offering”),35,000 shares of the Company’s Convertible Redeemable Series A Preferred Stock, par value $0.0001 per share (the “August 2024Preferred Stock”), for net proceeds of approximately $2.9 million in the aggregate for the August 2024Offering, after the deduction of discounts, fees and offering expenses. In connection with the August 2024*Offering, the Company paid $0.2 million to Ascendiant Capital Markets, LLC, the Company’s placement agent.

On the Closing Date, the Company filed a certificate of designation (the* “August 2024COD”) with the Secretary of the State of Delaware designating the rights, preferences and limitations of the August 2024Preferred Stock. Under the August 2024COD, for purposes of determining the presence of a quorum at any meeting of the stockholders of the Company at which the August 2024Preferred Stock were entitled to vote and the voting power of the August 2024Preferred Stock, each holder of the August 2024Preferred Stock was entitled to a number of votes equal to shares of the Company’s common stock into which such August 2024Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion. The August 2024*Preferred Stock were 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 2024Preferred Stock were 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 was convertible, at the option of the holders and, in certain circumstances, by the Company, 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, the Company and the* August 2024Purchasers also entered into a Registration Rights Agreement (the “August 2024RRA”), pursuant to which the Company agreed to file a registration statement with the SEC, to register for resale the common stock issuable upon the conversion of the August 2024Preferred Stock. The registration statement was filed with the SEC on August 30, 2024.*

All of the* August 2024Preferred Stock was redeemed in September 2024.As a result of the redemption of the August 2024Preferred Stock, the Company presented a deemed dividend of $0.6 million during thethree* andnine months ended* September 30, 2024.*

Series A Convertible Preferred Stock and Common Stock Purchase Warrants

Amendments to Series A Convertible Preferred Stock

Determination of Conversion Price Adjustments for Series A Preferred Stock

On* December 9, 2022,the Company and3i* entered into a letter agreement (the*“2022* Letter Agreement”) which provided that pursuant to Section8(g) of the Company’s Certificate of Designations for the Series A Preferred Stock (the “COD”), the Company and3i agreed that the Conversion Price (as defined in the COD) was modified to mean the lower of: (i) the Closing Sale Price (as defined in the COD) on the trading date immediately preceding the Conversion Date (as defined in the COD) and (ii) the average Closing Sale Price (as defined in the COD) of the common stock for thefive trading days immediately preceding the Conversion Date (as defined in the COD), for the Trading Days (as defined in the COD) through and inclusive of* January 19, 2023.Any conversion which occurs shall be voluntary at the election of3i,* which shall evidence its election as to the Series A Preferred Stock being converted in writing on a conversion notice setting forth the then Minimum Price (as defined in the COD). Management determined that the adjustment made to the Conversion Price isnot a modification of the COD which allows for adjustments to the Conversion Price (as defined in the COD) at any time by the Company and the other terms of the COD remained unchanged.

On* January 23, 2023,the Company and3i* amended the2022 Letter Agreement, to provide that the modification of the term Series A Preferred Stock Conversion Price (the “Series A Preferred Stock Conversion Price”) to mean the lower of: (i) the Closing Sale Price (as defined in the COD) on the trading date immediately preceding the Conversion Date (as defined in the COD and (ii) the average Closing Sale Price (as defined in the COD) of the Company’s shares of common stock for thefive trading days immediately preceding the Conversion Date (as defined in the COD), for the Trading Days (as defined in the COD) will be in effect until terminated by the Company and3i.

Modification to Conversion Price of Series A Preferred Stock and 3i Exchange Warrants

On* January 14, 2024,pursuant to the terms of the First Note, the Company modified the conversion price of the3i* Exchange Warrants from $600.00 to $268.50, thereby increasing the number of Exchange Warrants outstanding from 7,346 at* December 31, 2023to 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. The Company 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,the Company 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, the Company has recorded a deemed dividend of $228,000 as at 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, the Company modified the conversion price of the3i* 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.The Company 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,*the Company 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 $122,000. 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.

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On* March 14, 2024,pursuant to the terms of the Third Note, the Company modified the conversion price of the3i* Exchange Warrants from $234.00 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.The Company 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,*the Company 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 $69,000. 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,the Company amended the conversion prices of the Series A Convertible Preferred Stock, the Exchange Warrants and the2024* Notes to equal the current last sale price of its shares of common stock of $34.50 as of* May 1, 2024.*

Accounting

Series A Preferred Stock

As a result of fair value adjustments during thenine months ended* September 30, 2024*, the Company recognized a deemed dividend of $0.3 million and an extinguishment gain of $0.2 million on the Company's outstanding Series A Preferred Stock. Inputs used in the Black-Scholes valuation models utilized to fair value the modifications to the Series A Preferred Stock during thenine months ended* September 30, 2024*, are as follows:

3i Exchange Warrants

The3i Exchange Warrants were identified as a freestanding financial instrument and meet the criteria for derivative liability classification, initially measured at fair value. Subsequent changes in fair value are recognized through earnings for as long as the contracts continue to be classified as a liability. The measurement of fair value is determined utilizing an appropriate valuation model considering all relevant assumptions current at the date of issuance and at each reporting period (i.e., share price, exercise price, term, volatility, risk-free rate and expected dividend rate).

Series A Preferred Stock and3i* Exchange Warrant Conversions*

During thenine months ended* September 30, 2024*:

During thenine months ended* September 30, 2023,3i exercised its option to convert 12,052 shares of Series A Preferred stock for 404 shares of common stock at the fair value of $3.9 million, and the Company redeemed 4,630 shares of Series A Preferred Stock held by3i for $5.0 million. As of September 30, 2023,*there were 1,417 issued and outstanding shares of Series A Preferred Stock.

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The accounting for the Series A Preferred Stock and Warrants is illustrated in the tables below:

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Series C Convertible Preferred Stock

On* February 28, 2023,the Company entered into a Securities Purchase Agreement (the“2023* SPA”) with3i for the purchase and sale of 50,000 shares of Series C Convertible Redeemable Preferred Stock (“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 50,000 shares of Series C Preferred Stock (the “Shares”) are convertible into shares of the Company’s common stock, subject to the terms of the Series C Certificate of Designation (“Series C COD”).

The Company evaluated the terms of the Series C Preferred Stock as required pursuant to ASC570, 480, 815 and ASU2020-06, and concluded the Series C Preferred Stock fair value to be $1.2 million, net of share issuance costs of $40,000, and accreted to redemption value of $1.5 million on* April 21, 2023,using the effective interest method. Effective April 21, 2023,*all of the 50,000 shares of Series C Preferred stock were exchanged for 5,577 shares of Series A Preferred Stock at an agreed value of $1.7 million.

The Company treated the exchange of Series C Preferred Stock for Series A Preferred Stock as an extinguishment as there has been a fundamental change in the nature of the instrument and applied the derecognition accounting model in ASC260-10-S99-2. Accordingly, the Company had recognized the difference between (1) the fair value of the consideration transferred to the holders of the preferred shares of $5.2 million, and (2) the carrying amount of the preferred shares (net of issuance costs), of $1.2 million as a deemed dividend of $4.0 million that is deducted from additional paid in capital and subtracted from net income to arrive at income available to common stockholders in the calculation of loss per common share.

8. Derivative Liabilities

Continuity of Common Share Purchase Warrant and 3i Warrant Derivative Liabilities

Warrant liabilities are categorized within Level3 of the fair value hierarchy and are measured at fair value on a recurring basis as follows (in thousands):

The Common Share Purchase Warrants, comprised of warrants issued in* April 2023,** July 2023,and September 2023,and3i* Exchange Warrant derivative liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value during the year ended* December 31, 2023,and during thenine* months ended* September 30, 2024,*is presented in the following tables:

Common Share Purchase Warrants – Valuation Inputs

On* September 30, 2024*, the Company used the Black-Scholes Merton model to estimate the fair value of the Common Share Purchase Warrants derivative liability at $2,000, using the following inputs:

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3i Exchange Warrants - Valuation Inputs

On* September 30, 2023,the Company utilized the reset strike options Type2* model by Espen Garder Haug and Black-Scholes Merton models to estimate the fair value of the3i Warrants to be approximately $4.0 million. The3i Warrants were valued at* September**30,* 2023 using the following inputs:

9. Stockholders’** Equity**

Common Stock

On* September 9, 2024,*the Company filed the Sixth Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State to decrease the number of authorized shares from,750,500,000 to 250,500,000 shares and decrease the number of common stock from 750,000,000 to 250,000,000 shares.

Reverse Stock Splits

On* April 4, 2024,the Company filed a Fifth Certificate of Amendment to the Certificate of Incorporation with the Delaware Secretary of State to effect a1*-for-20 reverse stock split (the* "AprilReverse Stock Split") of the Company's shares of common stock effective as of April**9,* 2024. No fractional shares were issued in connection with the* AprilReverse Stock Split. If, as a result of the AprilReverse Stock Split, a stockholder would otherwise have been entitled to a fractional share, each fractional share was rounded up to the next whole number. The AprilReverse Stock Split resulted in a reduction of the Company's outstanding shares of common stock as of March 31, 2024,*from 228,487 to 11,426. The par value of the Company's authorized stock remained unchanged at $0.0001.

On* September 9, 2024,the Company filed the Seventh Certificate of Amendment with the Secretary of State of the State of Delaware to effect a1*-for-30 reverse stock split (the* "SeptemberReverse Stock Split") of the shares of common stock, effective September 11, 2024.As a result of the SeptemberReverse Stock Split, every 30 shares of common stock outstanding immediately prior to effectiveness of the SeptemberReverse Stock Split were combined and converted intoone* share of common stock without any change in the par value per share. The* SeptemberReverse Stock Split became effective on September 11, 2024,and the common stock was quoted on the Nasdaq Capital Market ("Nasdaq") on a post-split basis at the open of business on September 11, 2024.No fractional shares were issued in connection with the SeptemberReverse Stock Split. Stockholders who would have otherwise been entitled to a fraction ofone* share of common stock as a result of the* SeptemberReverse Stock Split instead receivedone* whole share of common stock. The Company issued 97,190 shares of common stock to shareholders who had been entitled to a fraction ofone share.

All share and per share information has been retroactively adjusted to give effect to the* AprilReverse Stock Split and September*Reverse Stock Split for all periods presented, unless otherwise indicated.

2023 Shelf

On* November 2, 2023,the Company filed a shelf registration statement (FileNo.* 333-275282) on Form S-3, which was declared effective on* November 29, 2023 (the "Shelf"). Approximately $15.9 million of securities remain available for sale under the Shelf as of September 30, 2024.*

On* March 19, 2024,the Company entered into an At-The-Market Issuance Sales Agreement, as amended (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (“Ascendiant”) pursuant to which, the Company mayoffer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate gross sales price of up to $50 million, to or through the Ascendiant. The offer and sale of the shares will be made pursuant to a previously filed shelf registration statement on Form S-3 (FileNo.* 333-275282), originally filed with the SEC on* November 2, 2023and declared effective by the SEC on November 29, 2023,and the related prospectus supplement dated September 9, 2024and filed with the SEC on such date pursuant to Rule424*(b) under the Securities Act of1933, as amended (the “Securities Act”). On* May 2, 2024,the Company's public float increased above $75.0 million and, as a result, the Company isnot* subject to the limitations contained in General InstructionI.B.6 of Form S-3.

Under the Sales Agreement, Ascendiant* maysell shares by any method permitted by law deemed to be an “at the market offering” as defined in Rule415*(a)(4) under the Securities Act. Ascendiant will use commercially reasonable efforts to sell the shares from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company* mayimpose). The Company 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 and has provided the Ascendiant with customary indemnification and contribution rights. The Company also agreed to reimburse Ascendiant for certain expenses incurred in connection with the Sales Agreement. The Company and the Ascendiant may*each terminate the Sales Agreement at any time upon specified prior written notice.

For thethree andnine months ended* September 30, 2024,the Company sold an aggregate of 1,493,878 and 2,556,927 shares of its common stock pursuant to the Sales Agreement, resulting in net proceeds of approximately $5.4 million and $33.1 million, respectively, after deducting underwriting discounts. There wereno* sales of common stock pursuant to the Sales Agreement in2023.

Series A Preferred Stock

During thesix months ended* June 30, 2024,3i exercised its option to convert 1,417 shares of Series A Preferred Stock for 15,976 shares of common stock at the fair value of $1.8 million. As of June 30, 2024,*there wereno remaining shares of Series A Preferred Stock issued and outstanding.

Exchange Warrants

3i converted 6,667 Exchange Warrants on a cashless basis for 2,824 shares of common stock at $69.00 per share on* April 12, 2024,and 114,413 Exchange Warrants at $34.50 per share for 75,832 shares of common stock on May 2, 2024.As September 30, 2024*, there areno outstanding Exchange Warrants.

Settlement Agreement

In accordance with the terms of the settlement agreement between the Company and James G. Cullem, the Company's former CEO, the Company issued 484 shares of common stock valued at $90,000 to James G. Cullem in exchange for consulting services for thenine month period ended* September 30, 2024.*

Equity Incentive Plan

The Company has in effect the Allarity Therapeutics, Inc.2021 Incentive Plan (as amended, the*“2021* Incentive Plan"). Under the2021 Incentive Plan, the compensation committee of the Company’s board of directors is authorized to grant stock-based awards to employees, directors, consultants, independent contractors and advisors. The2021 Incentive Plan authorizes grants to issue up to 353,163 shares of authorized but unissued common stock and expires10 years from adoption and limits the term of each option tono more than10 years from the date of grant.

At the2024 Annual Meeting of Stockholders of the Company held on* September 3, 2024,the Company’s stockholders, upon the recommendation of the Company’s board of directors, approved an amendment to the2021* Incentive Plan, as amended, to increase the aggregate number of shares of the Company's common stock authorized for grant under the2021 Incentive Plan from 72,278 to 353,163.

The number of shares available for grant and issuance under the2021 Incentive Plan will be increased on* January 1st of each of2022* through2031, by the lesser of (a)5% of the number of shares of all classes of the Company’s common stock issued and outstanding on each* December 31*immediately prior to the date of increase or (b) such number of shares determined by the Board.

Total shares available for the issuance of stock-based awards under the Company’s2021 Incentive Plan was 353,156 shares at* September 30, 2024.*

The Company granted inducement awards consisting of 55,555 common shares on* September 12, 2024and 118,483 common shares on September 30, 2024.The common stock inducement grants were made pursuant to Nasdaq Rule5635*(c)(4) and werenot granted pursuant to the2021 Incentive Plan.

Restricted Stock Units

The following table summarizes the restricted stock unit activity during thenine months ended* September 30, 2024:*

At* September 30, 2024,*the Company had unrecognized stock-based compensation expense related to restricted stock awards of $0.4 million, which is expected to be recognized over the remaining weighted-average vesting period of 2.0 years. The expense is recognized over the vesting period of the award.

Stock Options

The following table summarizes stock option activity during thenine months ended* September 30, 2024:*

There wereno options granted during thenine months ended* September 30, 2024.The aggregate intrinsic value of options is calculated as the difference between the exercise price of the underlying options and the fair value of the Company's common stock for those options that had exercise prices lower than the fair value of the Company's common stock. As of September 30, 2024,the total compensation cost related to non-vested options awardsnot* yet recognized is approximately $2,000 with a weighted average remaining vesting period of 1 year.

Stock-based compensation expense has been reported in the Company's condensed consolidated statements of operations as follows:

10. License and Development Agreements

License Agreement with Novartis for Dovitinib

On* January 26, 2024,the Company received a termination notice from Novartis due to a material breach of the License Agreement. Accordingly, under the terms of the License Agreement, the Company ceased all development and commercialization activities with respect to all licensed products, all rights and licenses granted by Novartis to the Company 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. As of September 30, 2024*, the liability is recorded as a current liability on the Company’s condensed unaudited consolidated balance sheets as follows: $3.6 million in accounts payable, $1.3 million convertible promissory notes and accrued interest, net of debt discount, and $0.2 million in accrued liabilities.

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License Agreement with Eisai Inc. for Stenoparib

The Company holds the exclusive worldwide rights to all preventative, therapeutic and/or diagnostic uses related to cancer in humans and by amendment to the agreement on* December 11, 2020,viral infections in humans (including, butnot* limited to, coronaviruses) for stenoparib from Eisai, Inc. (“Eisai”) pursuant to a license agreement (the “Eisai License Agreement”). Pursuant to the Eisai License Agreement, the Company is solely responsible for the development of stenoparib during the term of the Eisai License Agreement. Eisai License Agreement also provides for a joint development committee consisting ofsix members,three appointed by the Company andthree appointed by Eisai. One of the Company’s members of the joint development committee is designated chair of the committee and has the power to break any deadlock in decisions by the committee that must be made by a majority vote with each representative havingone vote. The purpose of the committee is to implement and oversee development activities for stenoparib pursuant to the clinical development plan, serving as a forum for exchanging data, information and development strategy.

Effective* July 12, 2022,the Company’s July 6, 2017Exclusive License Agreement with Eisai Inc. (the “Third Amendment”), the terms of the original exclusive license were further amended in order to (1) further postpone the due date of the extension payment and extend the deadline for the Company’s successful completion of itsfirst* Phase1b or Phase2 clinical trial for stenoparib beyond* December**31,* 2022; and (2) amend terms related to Eisai’s right of termination of development.

On* May 26, 2023,the Company and Eisai entered into afourth* amendment to the Exclusive License Agreement with an effective date of* May 16, 2023,to postpone the extension payment, restructure the payment schedule and extend the deadline to complete enrollment in a further Phase1b* or Phase2 Clinical Trial for the stenoparib. The Company agreed to pay Eisai in periodic payments as follows: (i) $100,000, which has been paid; (ii) $50,000 within10 days of execution of thefourth amendment, which has been paid; (iii) $100,000 upon completion of a capital raise, which has been paid; and (iv) $850,000 on or before* March 1, 2024.*

On* February 26, 2024,in exchange for an additional $0.2 million, paid as of May 1, 2024,the Company and Eisai entered into afifth* amendment to the Exclusive License Agreement to postpone the payment of $850,000. The Company agreed to make aone-time payment to Eisai of $850,000 upon completion of aten-million dollar capital raising campaign,no later than* September 1, 2024.The Company paid Eisai $850,000 on August 20, 2024andno* payments are currently outstanding.

On* August 2, 2024,the Company and Eisai entered into asixth* amendment to the Exclusive License Agreement with an effective date of* August 2, 2024.*The terms of the amended exclusive license were further amended in order to (1) amend the definition of a successful completion and (2) amend the terms related to Eisai's right of termination for development.

Development Milestone Payments

The Company has agreed to make milestone payments to Eisai in connection with the development of stenoparib by the Company or its affiliates, or by athird-party program acquirer that assumes control of the stenoparib development program from the Company corresponding to: (i) successful completion of a Phase2 clinical trial; (ii) upon dosing of thefirst patient in thefirst Phase3 clinical trial; (iii) upon submission of thefirst NDA with the FDA; (iv) submission of an MAA to the EMA; (v) submission of an NDA to the MHLW in Japan; (vi) upon receipt of authorization by the FDA to market and sell a licensed product; (vii) upon receipt of approval of an MAA by the EMA for a licensed product; and (viii) upon receipt of approval by the MHLW in Japan for a licensed product. If all milestones have been achieved, the Company* maybe obligated to pay Eisai up to a maximum of $94 million. In addition, the Company has agreed to pay Eisai aone*-time sales milestone payment in the amount of $50 million thefirst time the Company’s annual sales of licensed product is $1 billion or more.

Royalty Payments

In addition to the milestone payments described above, the Company has agreed to pay Eisai royalties based on annual incremental sales of product derived from stenoparib in an amount between 5% and 10% of annual sales of between $0 and $100 million, between 6% and 10% of annual sales between $100 million and $250 million, between 7% and 11% of annual sales between $250 million and $500 million, and between 11% and 15% of annual sales in excess of $500 million.

The Company is obligated to pay royalties under the agreement on a country-by-country and product-by-product basis for a period that commences with thefirst commercial sale of a product in such country and expiring on the later of (i) the expiration of the last valid claim of any and all Eisai patents, OV patents and joint patents covering such product in such country; or, (ii) the15 year anniversary of the date offirst commercial sale of such licensed product in such country. However, the agreement* maybe terminated sooner without cause by the Company upon120* days prior written notice, or upon written notice of a material breach of the agreement by Eisai that isnot cured within90 days (30 days for a payment default).

Eisai also has the right to terminate the agreement upon written notice of a material breach of the agreement by the Company that isnot cured within90 days (30 days for a payment default) or if the Company files for bankruptcy.

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Option to Reacquire Rights to Stenoparib

For the period commencing with enrollment of thefirst five patients in a Phase2 clinical trial pursuant to the clinical development plan and ending90 days following successful completion of such Phase2 clinical trial, Eisai has the option to reacquire the Company's licensed rights to develop stenoparib for a purchase price equal to the fair market value of the Company's rights, giving effect to the stage of development of stenoparib that the Company has completed under the agreement. The Company commenced a Phase2 clinical trial* April 15, 2019,and as of the date of the Financial Statements, Eisai hasnot* indicated an intention to exercise its repurchase option.

11. Related party

During thethree andnine months ended* September 30, 2024,Thomas H. Jensen, a director of the Company, was paid $0 and $0.2 million, respectively, in fees as a consultant. Effective June 1, 2024,*the Company executed a Chief Executive Officer Management Services Agreement with Thomas H. Jensen.

During thethree andnine months ended* September 30, 2023,*Thomas H. Jensen was paid $32,000 and $0.1 million, respectively, in fees as a consultant.

12. Loss per share of common stock

Basic loss per share is derived by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, of the potential exercise or conversion of securities, such as warrants and stock options, which would result in the issuance of incremental shares of common stock unless such effect is anti-dilutive. In calculating the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remained the same for both calculations because when a net loss exists, dilutive shares arenot included in the calculation. Potentially dilutive securities outstanding, as determined by the latest applicable conversion price, that have been excluded from diluted loss per share due to being anti-dilutive include the following:

13. Financial Instruments

The following tables present information about the Company’s financial instruments measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:

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Methods used to estimate the fair values of the Company's financial instruments,not disclosed elsewhere in the Financial Statements, are as follows:

When available, the Company’s marketable securities are valued using quoted prices for identical instruments in active markets. If the Company is unable to value its marketable securities using quoted prices for identical instruments in active markets, the Company values its investments using broker reports that utilize quoted market prices for comparable instruments. The Company hasno financial assets or liabilities measured using Level2 inputs. Financial assets and liabilities are considered Level3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at leastone significant model assumption or input is unobservable.

The Company recognizes its derivative liabilities as Level3 and values its derivatives using the methods described in Note8. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using terms in the notes that are subject to volatility and market price of the underlying shares of common stock.

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs* mayresult in a reclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the date the actual event or change in circumstances that caused the transfer occurs. When a determination is made to classify an asset or liability within Level3,* the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. There wereno transfers between Level1 or Level2 during thenine months ended* September 30, 2024and2023*.

14. Commitments and Contingencies

Indemnification

In accordance with its certificate of incorporation, bylaws, and indemnification agreements, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company's request in such capacity.

SEC Investigation

On* July 19, 2024,the Company received a “Wells Notice” from the Staff of the SEC relating to the Company’s previously disclosed SEC investigation. The Wells Notice relates to the Company’s disclosures regarding meetings with the United States Food and Drug Administration (the “FDA”) regarding the Company’s NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in2021.* The Company understands that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year2022. The Company also understands thatthree of its 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 the Company that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company that would allege certain violations of the federal securities laws. The Company is continuing to cooperate with the SEC and maintains that its actions were appropriate, and pursuing the Wells Notice process.

Nasdaq Delisting Notifications

On* June 18, 2024,the Company received a letter from the Nasdaq Listing Qualifications Staff (the “Staff”) of Nasdaq indicating that the Company hasnot* complied with the Nasdaq Listing Rule5550(a)(2) (the “Bid Price Rule”) which is the requirement that for30 consecutive business days the bid price for the Company’s common stock close above the*$1* per share minimum bid price requirement for continued inclusion on Nasdaq. On* July**30,* 2024, the Company attended a hearing before a Nasdaq Hearings Panel (the "Panel"), and by decision date* August 15, 2024,the Panel granted the Company's request for an extension through September 6, 2024to obtain shareholder approval for a reverse split at a ratio that will allow the Company to demonstrate compliance with the Bid Price Rule. This approval was granted by Allarity's shareholders at the Company's Annual Meeting of Stockholders on September 3, 2024.On October 9, 2024,the Company was formally notified by the Staff that the Company has evidenced compliance with the Bid Price Requirement for continued listing on the Nasdaq, as set forth in Nasdaq Listing Rule5550*(a)(2).

Class Action

On* September 13, 2024,a purported class action captionedOsman 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 the Company and certain of its current and former officers. The complaint alleges, 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 asserts violations of Section10(b) of the Securities Exchange Act of1934 and Rule10b-5 thereunder against all defendants as well as violations of Section20(a) of the Exchange Act of1934 against the individual defendants. The Company believes that the class action is without merit and plans to vigorously defend itself against these claims. At this time, there can beno assurance that the Company will prevail in the lawsuits and the Company cannot currently estimate the possible loss or range of losses, if any, that it* may*experience in connection with this litigation.

15. Subsequent Events

For its Financial Statements as of* September 30, 2024,and for thethree* months then ended, the Company evaluated subsequent events through the date on which the Financial Statements were issued. All subsequent eventsnot disclosed elsewhere in this Quarterly Report are disclosed below.

During the period* October 1, 2024through November 13, 2024,*the Company had sold 1,534,356 shares of its common stock for net proceeds of $2.5 million.

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