Allarity Therapeutics(US:ALLR)2024-11-14 21:16markdown [PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Presents Allarity Therapeutics' unaudited condensed consolidated financial statements and detailed notes for Q3 2024 and 2023 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) **Condensed Consolidated Balance Sheets (U.S. dollars in thousands):** | ASSETS | September 30, 2024 | December 31, 2023 | | :-------------------------------- | :------------------- | :------------------ | | Cash and cash equivalents | $ 18,463 | $ 166 | | Total current assets | 20,366 | 1,971 | | Intangible assets | — | 9,871 | | Total assets | $ 20,378 | $ 11,862 | | **LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)** | | | | Accounts payable | $ 4,693 | $ 8,416 | | Warrant derivative liability | 2 | 3,083 | | Total current liabilities | 7,414 | 14,167 | | Total liabilities | 7,414 | 14,613 | | Total stockholders' equity (deficit) | 12,964 | (2,751) | | Total liabilities and stockholders' equity (deficit) | $ 20,378 | $ 11,862 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) **Condensed Consolidated Statements of Operations and Comprehensive Loss (U.S. dollars in thousands):** | Operating Expenses | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $ 1,021 | $ 1,948 | $ 4,249 | $ 4,480 | | Impairment of intangible assets | 9,703 | — | 9,703 | — | | General and administrative | 1,589 | 2,478 | 5,972 | 7,770 | | Total operating expenses | 12,313 | 4,426 | 19,924 | 12,250 | | Loss from operations | (12,313) | (4,426) | (19,924) | (12,250) | | Net loss | (11,590) | (4,447) | (17,062) | (10,179) | | Net loss attributable to common stockholders | $ (12,152) | $ (5,552) | $ (17,701) | $ (18,694) | | Basic and diluted net loss per common stock | $ (7.71) | $ (1,346.09) | $ (25.33) | $ (11,630.75) | | Total comprehensive loss attributable to common stockholders | $ (11,753) | $ (4,539) | $ (17,344) | $ (10,216) | [Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20(Deficit)) - The company's total stockholders' equity (deficit) significantly improved from **$(2.751) million** at December 31, 2023, to **$12.964 million** at September 30, 2024, primarily driven by an increase in additional paid-in capital[12](index=12&type=chunk)[20](index=20&type=chunk) - Key activities impacting equity during the nine months ended September 30, 2024, included the conversion and extinguishment of preferred stock, issuance of common stock through ATM sales, and stock-based compensation[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Condensed Consolidated Statements of Cash Flows (U.S. dollars in thousands):** | Cash Flows from Operating Activities | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $ (17,062) | $ (10,179) | | Impairment of intangible assets | 9,703 | — | | Change in fair value of warrant and derivative liabilities | (2,676) | (7,187) | | Net cash used in operating activities | (14,146) | (11,073) | | **Cash Flows from Financing Activities** | | | | Proceeds from ATM sales of common stock, net | 33,119 | — | | Net proceeds from sale of common stock and pre-funded warrant issuance | — | 16,895 | | Net cash provided by financing activities | 32,557 | 10,473 | | Net increase (decrease) in cash and cash equivalents | 18,411 | (600) | | Cash and cash equivalents, end of period | $ 18,463 | $ 1,399 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization, Principal Activities and Basis of Presentation](index=12&type=section&id=1.%20Organization,%20Principal%20Activities%20and%20Basis%20of%20Presentation) - Allarity Therapeutics, Inc. is a clinical-stage pharmaceutical company developing personalized cancer treatments using its proprietary Drug Response Predictor (DRP®) technology[24](index=24&type=chunk) - The company has incurred significant operating losses and negative cash flows since inception, with an accumulated deficit of **$111.5 million** as of September 30, 2024. However, existing cash and cash equivalents of **$18.5 million** are expected to fund operations for at least the next 12 months[28](index=28&type=chunk)[29](index=29&type=chunk) - Future liquidity could be affected by the ability to raise additional capital, costs of strategic alliances, regulatory events, or unanticipated expenses[31](index=31&type=chunk) [2. Summary of Significant Accounting Policies](index=14&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) - No new material changes to significant accounting policies were reported since the December 31, 2023 Form 10-K[36](index=36&type=chunk) - The company's reporting currency is the U.S. dollar, with Danish subsidiary assets and liabilities translated at balance sheet rates and revenues/expenses at average monthly rates. Unrealized translation gains/losses are recorded as a cumulative translation adjustment[38](index=38&type=chunk)[39](index=39&type=chunk) - The company is evaluating the impact of new FASB ASUs on segment reporting (ASU 2023-07), income tax disclosures (ASU 2023-09), and income statement expense disaggregation (ASU 2024-03), which become effective in fiscal years starting after December 15, 2023, 2024, and 2026, respectively[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) [3. Intangible assets](index=15&type=section&id=3.%20Intangible%20assets) - The company recognized a **$9.7 million** impairment charge on intangible assets (stenoparib IPR&D) during the three months ended September 30, 2024, due to halting enrollment in the Phase 2 trial and focusing on a follow-on trial with FDA regulatory intent[50](index=50&type=chunk)[51](index=51&type=chunk) **Intangible Assets (U.S. dollars in thousands):** | Asset | September 30, 2024 | December 31, 2023 | | :-------------------- | :------------------- | :------------------ | | IPR&D assets (stenoparib) | $ 0 | $ 9,871 | [4. Accrued liabilities](index=16&type=section&id=4.%20Accrued%20liabilities) **Accrued Liabilities (U.S. dollars in thousands):** | Category | September 30, 2024 | December 31, 2023 | | :-------------------------- | :------------------- | :------------------ | | Development cost liability | $ 105 | $ 114 | | Accrued interest on milestone liabilities | 237 | 101 | | Accrued audit and legal | 652 | 425 | | Payroll accruals | 233 | 398 | | Accrued contracted services and other | 95 | 271 | | Total accrued expenses | $ 1,322 | $ 1,309 | [5. Convertible promissory note due to Novartis](index=17&type=section&id=5.%20Convertible%20promissory%20note%20due%20to%20Novartis) - On January 26, 2024, Novartis Pharma AG terminated its license agreement with Allarity due to a material breach, resulting in all rights reverting to Novartis and all liabilities becoming immediately due and payable[53](index=53&type=chunk) - As of September 30, 2024, the total liability to Novartis is recorded as **$3.6 million** in accounts payable, **$1.3 million** in convertible promissory notes and accrued interest, and **$0.2 million** in accrued liabilities[53](index=53&type=chunk) [6. Convertible senior promissory notes due to 3i, LP ("3i")](index=17&type=section&id=6.%20Convertible%20senior%20promissory%20notes%20due%20to%203i,%20LP%20(%223i%22)) - During Q1 2024, Allarity issued three senior convertible promissory notes to 3i totaling **$1.5 million** in principal (**$1.4 million net proceeds**), with an **8% annual interest rate** and conversion prices ranging from **$210.00 to $268.50 per share**[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) - The 2024 Notes and accrued interest were fully redeemed and cancelled on May 6, 2024[59](index=59&type=chunk) - Previous 3i Convertible Secured Promissory Notes from 2022, totaling **$2.8 million** in principal, were paid in full and cancelled on April 21, 2023[60](index=60&type=chunk)[62](index=62&type=chunk) [7. Preferred Stock](index=19&type=section&id=7.%20Preferred%20Stock) - In August 2024, Allarity issued **35,000 shares** of Convertible Redeemable Series A Preferred Stock in a private placement, generating approximately **$2.9 million in net proceeds**. All these shares were redeemed in September 2024, resulting in a deemed dividend of **$0.6 million**[64](index=64&type=chunk)[68](index=68&type=chunk) - The conversion price of Series A Preferred Stock and 3i Exchange Warrants was repeatedly modified in early 2024, decreasing from **$600.00 to $210.00 per share** by March 14, 2024, and further to **$34.50 by May 1, 2024**[70](index=70&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - During the nine months ended September 30, 2024, 3i converted all **1,417 shares** of Series A Preferred Stock into **15,976 common shares** (**$1.8 million fair value**) and all **121,079 3i Exchange Warrants** into **78,655 common shares** (**$0.4 million fair value**). As of September 30, 2024, no Series A Preferred Stock or 3i Exchange Warrants remain outstanding[77](index=77&type=chunk) [8. Derivative Liabilities](index=24&type=section&id=8.%20Derivative%20Liabilities) - Warrant derivative liabilities are classified as **Level 3** in the fair value hierarchy and are measured at fair value on a recurring basis[85](index=85&type=chunk) **Common Share Purchase Warrant and 3i Warrant Derivative Liabilities (U.S. dollars in thousands):** | Category | Balance at Jan 1, 2024 | Change in fair value adjustment | Cashless conversion of 3i Exchange Warrants | Balance at Sep 30, 2024 | | :----------------------------------- | :--------------------- | :------------------------------ | :------------------------------------------ | :---------------------- | | Common Share Purchase Warrants | $ 2,263 | $ (2,261) | — | $ 2 | | 3i Exchange Warrants | 820 | (415) | (405) | — | | **Total** | **$ 3,083** | **$ (2,676)** | **$ (405)** | **$ 2** | - The fair value of Common Share Purchase Warrants decreased significantly from **$2.263 million** at January 1, 2024, to **$2 thousand** at September 30, 2024, primarily due to fair value adjustments[87](index=87&type=chunk) [9. Stockholders' Equity](index=26&type=section&id=9.%20Stockholders'%20Equity) - The company effected two reverse stock splits in 2024: a **1-for-20 split** on April 9, 2024, and a **1-for-30 split** on September 11, 2024, to maintain Nasdaq listing compliance. All historical share and per share amounts have been retroactively adjusted[5](index=5&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - Through an At-The-Market (ATM) facility, the company sold **1,493,878 shares** for **$5.4 million net proceeds** in Q3 2024, and **2,556,927 shares** for **$33.1 million net proceeds** during the nine months ended September 30, 2024[99](index=99&type=chunk) - The 2021 Incentive Plan was amended to increase authorized shares for grant from **72,278 to 353,163**. As of September 30, 2024, **174,038 restricted stock units** were granted and outstanding, with **$0.4 million in unrecognized compensation expense**[103](index=103&type=chunk)[107](index=107&type=chunk)[109](index=109&type=chunk) [10. License and Development Agreements](index=28&type=section&id=10.%20License%20and%20Development%20Agreements) - The license agreement with Novartis for Dovitinib was terminated on January 26, 2024, due to a material breach, leading to all rights reverting to Novartis and liabilities becoming immediately due[112](index=112&type=chunk) - Allarity holds exclusive worldwide rights for stenoparib from Eisai, Inc. The agreement has been amended multiple times, including postponing payments and restructuring schedules. The company paid Eisai **$0.85 million** on August 20, 2024, with no outstanding payments[114](index=114&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - The company is obligated to make up to **$94 million** in development milestone payments and a **$50 million** sales milestone payment to Eisai for stenoparib, plus tiered royalties of **5-15%** on annual sales[119](index=119&type=chunk)[120](index=120&type=chunk) [11. Related party](index=30&type=section&id=11.%20Related%20party) **Consultant Fees Paid to Thomas H. Jensen (Director):** | Period | 2024 (in thousands) | 2023 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Three months ended September 30 | $ 0 | $ 32 | | Nine months ended September 30 | $ 200 | $ 100 | - Effective June 1, 2024, Thomas H. Jensen, a director, executed a Chief Executive Officer Management Services Agreement with the Company[124](index=124&type=chunk) [12. Loss per share of common stock](index=30&type=section&id=12.%20Loss%20per%20share%20of%20common%20stock) - Basic and diluted loss per share calculations are the same due to net loss, making potential dilutive securities anti-dilutive[125](index=125&type=chunk) **Potentially Dilutive Securities Excluded from Diluted EPS (Number of Shares):** | Security Type | As of September 30, 2024 | As of September 30, 2023 | | :----------------------------------- | :----------------------- | :----------------------- | | Warrants | 8,557 | 27,369 | | Options | 7 | 9 | | Unvested restricted stock units | 174,038 | — | | Series A Convertible Preferred stock | — | 2,551 | | **Total** | **182,602** | **29,929** | [13. Financial Instruments](index=30&type=section&id=13.%20Financial%20Instruments) - The company's warrant derivative liabilities are classified as **Level 3** financial instruments, meaning their fair values are determined using unobservable inputs in pricing models[127](index=127&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) **Fair Value of Liabilities (U.S. dollars in thousands):** | Liabilities | September 30, 2024 (Level 3) | December 31, 2023 (Level 3) | | :----------------------------------- | :--------------------------- | :-------------------------- | | Warrant liability | $ (2) | $ (2,263) | | Derivative warrant liability | — | (820) | | **Total** | **$ (2)** | **$ (3,083)** | - There were no transfers between Level 1 or Level 2 of the fair value hierarchy during the nine months ended September 30, 2024 and 2023[131](index=131&type=chunk) [14. Commitments and Contingencies](index=31&type=section&id=14.%20Commitments%20and%20Contingencies) - The company received a 'Wells Notice' from the SEC on **July 19, 2024**, indicating a preliminary determination to recommend an enforcement action related to disclosures about FDA meetings for Dovitinib NDA/DRP, with conduct occurring during or prior to fiscal year 2022[133](index=133&type=chunk) - Allarity received Nasdaq notification on **June 18, 2024**, for non-compliance with the $1 minimum bid price rule. Following shareholder approval of a reverse split, Nasdaq confirmed compliance on **October 9, 2024**[134](index=134&type=chunk) - A class action lawsuit was filed on **September 13, 2024**, alleging false and misleading statements regarding Dovitinib NDA regulatory prospects and misconduct. The company believes the action is without merit and plans to vigorously defend itself[135](index=135&type=chunk)[136](index=136&type=chunk) [15. Subsequent Events](index=32&type=section&id=15.%20Subsequent%20Events) - From **October 1, 2024, through November 13, 2024**, the company sold an additional **1,534,356 shares** of common stock through its ATM facility, generating **$2.5 million in net proceeds**[138](index=138&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations for Q3 2024 and 2023 [Overview](index=33&type=section&id=Overview) - Allarity Therapeutics is a biopharmaceutical company focused on discovering and developing targeted anti-cancer drug candidates using its Drug Response Predictor (DRP®) platform[142](index=142&type=chunk) - The lead drug candidate, stenoparib, is a small molecule dual inhibitor of PARP 1/2 and tankyrase 1/2[142](index=142&type=chunk) [Recent Developments](index=33&type=section&id=Recent%20Developments) - The company regained Nasdaq listing compliance on **October 9, 2024**, after effecting two reverse stock splits (**1-for-20** in April and **1-for-30** in September 2024) to meet the minimum bid price requirement[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - An At-The-Market (ATM) Issuance Sales Agreement was entered into on **March 19, 2024**, allowing the sale of up to **$50 million** in common stock. For Q3 2024, **$5.4 million in net proceeds** were raised through this facility[146](index=146&type=chunk) - The company received a 'Wells Notice' from the SEC on **July 19, 2024**, regarding potential enforcement action related to Dovitinib NDA disclosures. A class action lawsuit was also filed on **September 13, 2024**, alleging misleading statements[151](index=151&type=chunk)[152](index=152&type=chunk) [Financial Operations Overview](index=36&type=section&id=Financial%20Operations%20Overview) - Since inception, operations have been funded primarily by convertible notes and stock sales, with very limited revenue[155](index=155&type=chunk) - The company incurred net losses of **$17.1 million** and **$10.2 million** for the nine months ended September 30, 2024 and 2023, respectively, with an accumulated deficit of **$111.5 million** as of September 30, 2024[156](index=156&type=chunk) - Significant increases in expenses are expected for advancing drug candidates through clinical trials, pursuing regulatory approval, operating as a public company, and continuing research and development[156](index=156&type=chunk)[157](index=157&type=chunk) [Components of Operating Expenses](index=37&type=section&id=Components%20of%20Operating%20Expenses) - Research and development expenses include costs for third-party contract organizations, drug substance production, preclinical trials, and employee-related expenses. These costs are expensed as incurred[158](index=158&type=chunk)[159](index=159&type=chunk) - R&D expenses for stenoparib are expected to increase substantially, while costs for dovitinib and IXEMPRA will decrease due to deprioritization/termination[160](index=160&type=chunk) - General and administrative expenses consist of personnel, facilities, depreciation, amortization, and professional services. These are expected to increase due to anticipated headcount growth and public company operating costs[161](index=161&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) **Operating Costs and Expenses (U.S. dollars in thousands):** | Category | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Change (Decrease) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (Decrease) | | :----------------------------------- | :------------------------------ | :------------------------------ | :---------------- | :----------------------------- | :----------------------------- | :---------------- | | Research and development | $ 1,021 | $ 1,948 | $ (927) | $ 4,249 | $ 4,480 | $ (231) | | Impairment of intangible assets | 9,703 | — | 9,703 | 9,703 | — | 9,703 | | General and administrative | 1,589 | 2,478 | (889) | 5,972 | 7,770 | (1,798) | | Total operating costs and expenses | 12,313 | 4,426 | 7,887 | 19,924 | 12,250 | 7,674 | | Loss from operations | (12,313) | (4,426) | (7,887) | (19,924) | (12,250) | (7,674) | - Research and development expenses decreased by **$0.9 million** for the three months and **$0.2 million** for the nine months ended September 30, 2024, primarily due to reductions in manufacturing, supplies, and personnel costs[164](index=164&type=chunk) - A **$9.7 million** impairment charge on intangible assets was recognized in Q3 2024, with no comparable expense in 2023, due to changes in the stenoparib trial strategy[165](index=165&type=chunk) - General and administrative expenses decreased by **$0.9 million** for the three months and **$1.8 million** for the nine months ended September 30, 2024, mainly due to lower financing costs and insurance expenses[166](index=166&type=chunk)[167](index=167&type=chunk) - Other income (expense) shifted from a **$21 thousand expense** in Q3 2023 to a **$346 thousand income** in Q3 2024, driven by interest income and foreign exchange gains, and a significant change in fair value of warrant liabilities[168](index=168&type=chunk) [Liquidity, Capital Resources and Plan of Operations](index=39&type=section&id=Liquidity,%20Capital%20Resources%20and%20Plan%20of%20Operations) - As of September 30, 2024, the company had **$18.5 million** in cash and cash equivalents and an accumulated deficit of **$111.5 million**[171](index=171&type=chunk) - The company believes existing cash and cash equivalents are sufficient to fund operations for the next twelve months, but plans to seek additional funding through public/private equity, debt, or collaborations[173](index=173&type=chunk)[175](index=175&type=chunk) - Failure to raise additional capital on favorable terms could negatively impact business, results of operations, financial condition, and the ability to develop product candidates[173](index=173&type=chunk)[175](index=175&type=chunk) [Contractual Obligations and Commitments](index=40&type=section&id=Contractual%20Obligations%20and%20Commitments) - The company enters into cancellable agreements with vendors for preclinical studies, clinical trials, and other services. Non-cancellable obligations under these agreements are not considered material[177](index=177&type=chunk) [Cash Flows](index=40&type=section&id=Cash%20Flows) **Net Cash Provided by (Used in) Activities (U.S. dollars in thousands):** | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $ (14,146) | $ (11,073) | | Financing activities | 32,557 | 10,473 | | Net increase (decrease) in cash and cash equivalents | $ 18,411 | $ (600) | - Net cash used in operating activities increased to **$14.1 million** in 2024 from **$11.1 million** in 2023, primarily due to the net loss and changes in operating assets/liabilities, partially offset by intangible asset impairment[178](index=178&type=chunk)[179](index=179&type=chunk) - Net cash provided by financing activities significantly increased to **$32.6 million** in 2024 from **$10.5 million** in 2023, driven by proceeds from ATM stock sales and issuance of preferred stock, partially offset by redemptions and debt repayments[180](index=180&type=chunk) [Operating Capital and Capital Expenditure Requirements](index=41&type=section&id=Operating%20Capital%20and%20Capital%20Expenditure%20Requirements) - The company anticipates its existing cash and cash equivalents will fund operations for the next twelve months, but acknowledges that estimates may be inaccurate and additional funds may be needed sooner[184](index=184&type=chunk) - Substantial additional funding will be required in the future for development, potential commercialization, and regulatory approval of drug candidates, as well as building sales and marketing infrastructure[176](index=176&type=chunk) [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company does not have any off-balance sheet arrangements[185](index=185&type=chunk) [Critical Accounting Policies and Use of Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Use%20of%20Estimates) - The preparation of financial statements requires management to make estimates and judgments that affect reported asset, liability, and expense amounts, with actual results potentially differing from these estimates[186](index=186&type=chunk) - No significant changes to critical accounting policies occurred during the nine months ended September 30, 2024, as detailed in the December 31, 2023 Form 10-K[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Allarity Therapeutics, Inc. is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide market risk disclosures[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the company's disclosure controls and procedures, confirming effectiveness and no material changes in Q3 2024 - The company's disclosure controls and procedures were evaluated and concluded to be effective as of **September 30, 2024**[191](index=191&type=chunk) - Management acknowledges that control systems provide reasonable, not absolute, assurance and may not prevent or detect all errors or fraud[192](index=192&type=chunk) - There were no changes in internal control over financial reporting during the fiscal quarter ended September 30, 2024, that materially affected or are reasonably likely to materially affect internal control over financial reporting[193](index=193&type=chunk) [PART II—OTHER INFORMATION](index=43&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 14 for information regarding material legal proceedings - Information on material legal proceedings is incorporated by reference from Note 14, 'Commitments and contingencies,' in the financial statements[194](index=194&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) Updates risk factors, including global market conditions and new AI development and use risks - The risk factor concerning **'Unstable global market and economic conditions'** has been amended and restated, highlighting potential adverse effects from market volatility, geopolitical events (e.g., conflicts in Ukraine, Israel/Gaza), and the difficulty of securing financing[195](index=195&type=chunk)[196](index=196&type=chunk) - New risks related to the development and use of artificial intelligence (AI) are introduced, including security risks, legal/regulatory actions, reputational harm, and compliance challenges with evolving AI regulations (e.g., EU AI Act, U.S. Executive Order)[197](index=197&type=chunk)[198](index=198&type=chunk) - Failure to adhere to AI policies by personnel or contractors could violate confidentiality, jeopardize intellectual property, cause discrimination, or lead to misuse of personal information, materially harming the business[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the At-The-Market (ATM) Issuance Sales Agreement and subsequent common stock sales - The company has an At-The-Market (ATM) Issuance Sales Agreement with Ascendiant Capital Markets, LLC, allowing it to sell up to **$50 million** of common stock[201](index=201&type=chunk) - From **October 1, 2024, through November 13, 2024**, the company sold **1,534,356 shares** of common stock through the ATM facility, generating **$2.5 million in net proceeds**[202](index=202&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Refers to Note 5 for information regarding defaults upon senior securities - Information regarding defaults upon senior securities is incorporated by reference from Note 5, 'Convertible promissory note due to Novartis,' in the financial statements[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[204](index=204&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading arrangements in Q3 2024 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 2024[205](index=205&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Quarterly Report, including corporate governance and contractual agreements - The exhibit index includes various corporate governance documents such as Certificates of Incorporation and Bylaws, reflecting amendments and restatements[208](index=208&type=chunk) - Key agreements filed as exhibits include the August 2024 Securities Purchase Agreement, Registration Rights Agreement, Sixth Amendment to Exclusive License Agreement, and the Second Amendment to At-The-Market Issuance Sales Agreement[208](index=208&type=chunk) - Certifications of the Chief Executive Officer and Chief Financial Officer under Sections 302 and 1350 of the Sarbanes-Oxley Act are also included[209](index=209&type=chunk)