Drug Development - The company focuses on developing targeted anti-cancer drug candidates, with three lead candidates: dovitinib, stenoparib, and IXEMPRA [173] - Stenoparib is now the lead clinical asset, advancing in two out of three ongoing clinical trials [175] - The company continues to support the clinical development of IXEMPRA and dovitinib, which are believed to have substantial potential [175] - The company expects to incur substantial expenses for the development and commercialization of drug candidates, requiring additional funding in the future [237] Financial Performance - The company incurred net losses of $5.7 million and $8.2 million for the six months ended June 30, 2023, and 2022, respectively, with an accumulated deficit of $88.3 million as of June 30, 2023 [217] - Cash balance as of June 30, 2023, was $420 thousand, indicating limited liquidity for ongoing operations [217] - Total operating costs and expenses for the six months ended June 30, 2023, were $7.824 million, a decrease of $15.327 million compared to $23.151 million for the same period in 2022 [224] - Research and development expenses for the three months ended June 30, 2023, were $1.105 million, a decrease of $591 thousand from $1.696 million in the same period in 2022 [224] - General and administrative expenses for the six months ended June 30, 2023, were $5.292 million, a decrease of $867 thousand from $6.159 million in the same period in 2022 [224] - Other income for the three months ended June 30, 2023, was $1,776, compared to a loss of $257 for the same period in 2022, reflecting a significant improvement [231] - For the six months ended June 30, 2023, other income was $2,092, up from $13,745 in the same period of 2022, primarily due to a fair value adjustment to derivative liabilities [233] Funding and Capital Structure - The company raised approximately $11 million from a public offering on July 10, 2023, selling 357,223 shares of common stock at an effective price of $4.50 per share [190] - The conversion price of Series A Preferred Stock was reduced to $4.50 following the July offering [191] - The company redeemed 4,630 shares of Series A Preferred Stock for $5,000,400 in cash on July 10, 2023 [189] - The company received a loan of $350,000 from 3i on April 19, 2023, which was converted into shares of Series A Preferred Stock [183] - The company entered into a series of agreements with 3i, including a modification of the Series A Preferred Stock terms and a cancellation of debt agreement [184] - The number of shares exercisable under the Exchange Warrant was adjusted to 3,134,693 shares with an exercise price of $3.0155 per share following the July Offering [192] - The Company secured a promissory note of $350,000 from 3i with a 5% annual interest rate, which was fully redeemed for $350,886 in cash on July 10, 2023 [194] - Following a public offering on July 10, 2023, the company raised approximately $11 million, but the net proceeds of about $4.7 million are insufficient to fund operations for more than three months [235] - The company plans to mitigate funding challenges through additional public equity, private equity, and debt financing, but there are no assurances of success [236] Compliance and Governance - The board of directors was restructured with the appointment of new independent directors, ensuring compliance with Nasdaq requirements [178] - The company regained compliance with Nasdaq listing requirements as of July 14, 2023, and will be subject to a panel monitor for one year [213] - The Company filed an appeal with Nasdaq after being notified of potential delisting due to non-compliance with listing rules [209] - The company intends to seek further clarification from the Nasdaq hearings panel regarding compliance conditions [212] Stock and Shareholder Information - The June Reverse Stock Split reduced the outstanding shares of Common Stock from 20,142,633 to approximately 503,566 shares at a ratio of 1-for-40 [195] - From March 31, 2023 to August 14, 2023, the Company issued 223,857 shares of Common Stock upon the conversion of 8,214 shares of Series A Preferred Stock [200] - The exercise price of the April 2023 Common Warrants was reduced to $4.50 per share and the termination date extended to July 10, 2028 [199] - As of June 30, 2023, the company had $420 in cash and an accumulated deficit of $88.3 million, with a working capital deficit of $9 million [234] Operational Challenges - The company expects to continue incurring significant expenses and increasing operating losses over the next several years due to ongoing research and development activities [217] - Manufacturing and supplies expenses increased by $365 thousand for the three months ended June 30, 2023, primarily due to increased drug manufacturing costs [228] - As of August 11, 2023, the company had a cash position of approximately $1.2 million, which is insufficient to fund operations for the next twelve months [245] - For the six months ended June 30, 2023, net cash used in operating activities was approximately $5.7 million, a decrease of $4.2 million compared to the same period in 2022 [242] - Net cash provided by financing activities for the six months ended June 30, 2023, was approximately $4 million, compared to a cash outflow of $2.3 million in the same period of 2022 [244]

PART I – FINANCIAL INFORMATION [Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) The company reported a **$3.4 million** net loss and a **$3.1 million** stockholders' deficit, with **$295 thousand** cash, raising substantial doubt about its going concern ability due to insufficient funds and recent financing activities [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, the company's cash decreased to **$295 thousand**, with total liabilities exceeding assets, resulting in a **$(3,102) thousand** stockholders' deficit - As of March 31, 2023, the company had a cash balance of **$295 thousand**, a significant decrease from **$2,029 thousand** at the end of 2022. Total liabilities of **$13,041 thousand** exceeded total assets of **$12,702 thousand**, resulting in a total stockholders' deficit of **$(3,102) thousand**[14](index=14&type=chunk)[15](index=15&type=chunk) Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $295 | $2,029 | | Total current assets | $2,966 | $4,968 | | Intangible assets | $9,711 | $9,549 | | **Total assets** | **$12,702** | **$14,544** | | **Liabilities & Equity** | | | | Total current liabilities | $11,588 | $11,222 | | Total liabilities | $13,041 | $12,654 | | Total redeemable preferred stock | $2,763 | $2,003 | | Total stockholders' deficit | $(3,102) | $(113) | | **Total liabilities, preferred stock and stockholders' (deficit) equity** | **$12,702** | **$14,544** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported a **$3,352 thousand** net loss for Q1 2023, comparable to Q1 2022, which was significantly impacted by a **$14.0 million** intangible asset impairment and a **$12.6 million** derivative gain Statement of Operations Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Research and development | $1,427 | $1,289 | | Impairment of intangible assets | $0 | $14,007 | | General and administrative | $2,232 | $3,013 | | **Loss from operations** | **$(3,659)** | **$(18,309)** | | Net other income | $307 | $14,002 | | **Net loss** | **$(3,352)** | **$(3,080)** | | Net loss attributable to common stockholders | $(3,356) | $(4,652) | | **Basic and diluted net loss per common stock** | **$(4.43)** | **$(19.64)** | - The net loss for Q1 2023 was **$3.4 million**, compared to a net loss of **$3.1 million** in Q1 2022. The prior year's results were heavily impacted by a **$14.0 million** impairment of intangible assets and a **$12.6 million** gain from the change in fair value of derivative and warrant liabilities[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash used in operations totaled **$3,201 thousand** in Q1 2023, partially offset by **$1,158 thousand** from financing activities, leading to a **$2,043 thousand** net decrease and an ending cash balance of **$295 thousand** Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,201) | $(5,755) | | Net cash provided by investing activities | $0 | $809 | | Net cash provided by financing activities | $1,158 | $0 | | **Net decrease in cash** | **$(2,043)** | **$(4,946)** | - Cash used in operations was **$3,201 thousand** in Q1 2023. The company generated **$1,158 thousand** from financing activities through the issuance of Series C Convertible Preferred Stock. The cash balance decreased by **$2,043 thousand** during the quarter, ending at **$295 thousand**[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail a **$85.9 million** accumulated deficit and **$295 thousand** cash, raising substantial doubt about going concern, alongside a reverse stock split, subsequent public offering, Novartis breach, and an SEC investigation - The company has incurred significant losses, with an accumulated deficit of **$85.9 million** as of March 31, 2023. Its cash balance of **$295 thousand** is insufficient to fund operations for the next 12 months, raising substantial doubt about its ability to continue as a going concern[30](index=30&type=chunk)[33](index=33&type=chunk) - On March 24, 2023, the company executed a **1-for-35** reverse stock split. All historical share and per-share data have been adjusted to reflect this split[27](index=27&type=chunk)[101](index=101&type=chunk) - Subsequent to the quarter end, in April 2023, the company completed a public offering for gross proceeds of approximately **$7.5 million**. A significant portion of these funds was used to repay indebtedness to its primary investor, 3i, LP, resulting in net proceeds of only **$1.9 million**[32](index=32&type=chunk)[130](index=130&type=chunk) - The company received a notice of breach from Novartis on April 4, 2023, for failing to make a **$1.5 million** milestone payment due on April 1, 2023. As of April 28, 2023, only **$100 thousand** of this amount had been paid[118](index=118&type=chunk) - In January 2023, the company received a request for documents from the SEC regarding an investigation into potential violations of federal securities laws, focusing on communications with the FDA about its NDA for Dovitinib[126](index=126&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's biopharmaceutical focus, highlighting severe financial distress with **$295 thousand** cash and **$85.9 million** accumulated deficit, raising substantial doubt about its going concern ability, alongside recent corporate actions, Nasdaq non-compliance, and an urgent need for additional capital - The company's cash of **$295,000** as of March 31, 2023, is insufficient to fund its operating plan. Even after a subsequent equity financing in April 2023 yielded net proceeds of **$1.9 million**, the funds are only sufficient for approximately three more months, raising substantial doubt about its ability to continue as a going concern[180](index=180&type=chunk) Comparison of Operating Expenses (in thousands) | Expense Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $1,427 | $1,289 | $138 | | Impairment of intangible assets | $0 | $14,007 | $(14,007) | | General and administrative | $2,232 | $3,013 | $(781) | | **Total operating expenses** | **$3,659** | **$18,309** | **$(14,650)** | - The **$138 thousand** increase in R&D expenses in Q1 2023 vs Q1 2022 was primarily due to higher manufacturing, supplies, and research study costs, offset by decreases in staffing, contractor, and stock-based compensation costs[175](index=175&type=chunk) - General and administrative expenses decreased by **$781 thousand**, mainly due to a **$785 thousand** decrease in stock-based compensation resulting from forfeitures by resigned directors[177](index=177&type=chunk) - The company is facing multiple Nasdaq non-compliance issues, including failure to meet the minimum stockholders' equity requirement, minimum bid price, and independent director/audit committee composition, leading to a delisting determination which the company is appealing[152](index=152&type=chunk)[153](index=153&type=chunk)[210](index=210&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from the requirements of this item as it qualifies as a Smaller Reporting Company - As a Smaller Reporting Company, Allarity Therapeutics, Inc. is exempt from the requirements of Item 3 regarding quantitative and qualitative disclosures about market risk[194](index=194&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of March 31, 2023, due to material weaknesses in internal control over financial reporting, including resource and policy deficiencies, with remediation efforts ongoing but limited by financial constraints - Management identified several material weaknesses in its internal controls over financial reporting as of March 31, 2023[196](index=196&type=chunk) - Specific weaknesses include: a lack of accounting resources for US GAAP and SEC reporting, a lack of comprehensive accounting policies, inadequate procedures for complex transactions, and a lack of segregation of duties[196](index=196&type=chunk) - Remediation efforts are underway, including the promotion of a full-time CFO and retaining independent US GAAP and tax consulting services. However, the company notes that efforts may be limited by its financial condition[197](index=197&type=chunk)[199](index=199&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company states it is not currently a party to any material legal proceedings that arise in the ordinary course of business. However, it separately discloses an ongoing SEC investigation in other sections of the report - The company reports that it is not currently party to any legal proceedings and is not aware of any pending or threatened litigation that could have a material adverse effect on its business[202](index=202&type=chunk) [Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section highlights critical risks including default on the Novartis license, insufficient cash raising going concern doubt, Nasdaq delisting issues, an ongoing SEC investigation, and potential stock price declines from future sales - The company is in default under its license agreement with Novartis after failing to make a **$1.5 million** milestone payment, which could lead to the loss of rights to dovitinib[204](index=204&type=chunk) - The company has insufficient cash to fund operations for more than approximately three months from April 21, 2023, raising substantial doubt about its ability to continue as a going concern[205](index=205&type=chunk) - The company is not in compliance with multiple Nasdaq listing requirements (stockholders' equity, minimum bid price, MVPHS, board independence) and has received a delisting determination, which it is appealing[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) - An SEC investigation into potential violations of federal securities laws, focusing on FDA communications, could result in significant legal expenses, diversion of management attention, and other adverse consequences[213](index=213&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter, the company issued common stock from Series A Preferred Stock conversion and sold **$1.2 million** of Series C Preferred Stock to 3i, LP, all as unregistered private placements - In Q1 2023, the company issued **721,462** shares of Common Stock upon the conversion of **3,838** shares of Series A Preferred Stock by investor 3i, LP[216](index=216&type=chunk) - On February 28, 2023, the company sold **50,000** shares of Series C Preferred Stock to 3i, LP for an aggregate price of **$1.2 million**[216](index=216&type=chunk) - These security issuances were deemed exempt from registration under Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D as transactions not involving a public offering[217](index=217&type=chunk) [Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities for the period - None reported[217](index=217&type=chunk) [Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[217](index=217&type=chunk) [Other Information](index=49&type=section&id=Item%205.%20Other%20Information) The company reports no other information for the period - None reported[217](index=217&type=chunk) [Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the quarterly report, including certificates of designation for preferred stock, amendments to the certificate of incorporation, forms of warrants, employment agreements, and various agreements with investor 3i, LP, as well as Sarbanes-Oxley certifications

Business Focus - The company focuses on discovering and developing highly targeted anti-cancer drug candidates using its Drug Response Predictor (DRP) platform [833]. Financial Position - As of December 31, 2022, the company has an accumulated deficit of $82.6 million and cash deposits of $2.0 million, which are insufficient to fund its current operating plan for the next 12 months [852][875]. - The company anticipates that its cash reserves are sufficient for approximately 3 months, raising substantial doubt over its ability to continue as a going concern [875]. - As of the report date, the company does not have sufficient cash to fund its operating expenses and capital expenditure requirements for the next twelve months [889]. Funding and Capital Structure - A bridge loan of $350,000 was received in November 2022, with additional notes totaling $2,316,640 issued to extend cash runway beyond December 31, 2022 [834]. - The company established Series C Preferred Stock with a stated value of $27.00 per share, raising $1.2 million through the sale of 50,000 shares [841]. - A private placement offering for 50,000 shares of Series C Preferred Stock was conducted, raising $1.2 million to fund operating expenses [891]. - The company is actively exploring raising capital through equity and debt financing, but faces limitations if proposals for share increase and reverse stock split are not approved [894]. Expenses and Losses - The company's net losses were $16.1 million for the year ended December 31, 2022, compared to $26.6 million for 2021, indicating a decrease in losses [852]. - Research and development expenses for the year ended December 31, 2022, were $6.93 million, a decrease of $7.27 million from $14.2 million in 2021 [859][863]. - General and administrative expenses decreased by $2.4 million to $9.96 million for the year ended December 31, 2022, compared to $12.36 million in 2021 [859][868]. - The company recognized an impairment charge of $17.57 million for intangible assets due to a Refusal to File from the FDA and a further impairment of $3.6 million in December 2022 [865]. - The company recorded impairment losses of $17.6 million on intangible assets in 2022 [901]. Operational Challenges - COVID-19 has caused unexpected delays in clinical program activities, impacting the company's operations [846]. - The company is subject to risks common in the biotechnology industry, including the need for successful clinical trials and regulatory approvals [845]. - The company has contractual obligations totaling $4.9 million, all due within one year, related to milestone payments [888]. - The company has not yet experienced direct impacts from the Russia-Ukraine war, but clinical supply costs have increased by 5% to 10% due to inflation [850]. Cash Flow and Activities - For the year ended December 31, 2022, the company reported a net cash used in operating activities of $16.8 million, an increase from $14.9 million in 2021 [880][882]. - Cash provided by investing activities was $791 thousand in 2022, down from $1.0 million in 2021, primarily from the sale of intellectual property (IP) [878][884]. - Financing activities resulted in a cash outflow of $1.3 million in 2022, significantly lower than the inflow of $33.8 million in 2021, which included $20 million from the sale of Series A preferred stock [885]. Shareholder Matters - A special meeting of stockholders is scheduled for March 20, 2023, to vote on increasing authorized shares from 30,500,000 to 750,500,000 [844]. - The company amended its Certificate of Designation of Series A Preferred Stock to grant voting rights, which expired on February 28, 2023 [835]. Accounting and Financial Reporting - The Company accounts for certain convertible debt under the fair value option election of ASC 825, with estimated fair value adjustments recognized as other income (expense) in the consolidated statements of operations [904]. - Warrants are classified as equity if indexed to the Company's equity and meet specific conditions; otherwise, they are classified as derivative liabilities and carried at fair value [905]. - The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks, and evaluates financial instruments for embedded derivatives [906]. - Share-based compensation is accounted for in accordance with ASC 718, with expenses recognized over the requisite service period based on the fair value of equity-based payment awards [907]. - The Company uses either a graded or straight-line vesting method for option awards, accounting for forfeitures as they occur [909]. - Stock award modifications are reviewed, and incremental fair value is recognized as compensation cost for vested awards [910]. - The fair value of stock options is estimated using the Black-Scholes option-pricing model, which requires subjective assumptions [911]. - The Company is classified as a smaller reporting company and is not required to provide certain market risk disclosures [913].