Allarity Therapeutics(ALLR) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Consolidated Financial Statements 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 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][15] 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 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] Condensed Consolidated Statements of Cash Flows 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] Notes to Condensed Consolidated Financial Statements 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][33] - 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][101] - 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][130] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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] 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] - 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] - 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][153][210] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - 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] - 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][199] PART II – OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] - 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] - 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][208][209] - 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] - 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] Defaults Upon Senior Securities The company reports no defaults upon senior securities for the period - None reported[217] Mine Safety Disclosures This item is not applicable to the company - Not applicable[217] Other Information The company reports no other information for the period - None reported[217] Exhibits 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