Allarity Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2025

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations together with “Cautionary Note Regarding Forward-Looking Statements” and our condensed consolidated financial statements and related notes included under Item 1 of this Quarterly Report as well as our most recent Annual Report on Form 10-K for the year ended December 31, 2024, including Part 1, Item 1A “Risk Factors.”

The forward-looking statements contained in this report reflect our views and assumptions as of the effective date of this report. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Except as required by law, we assume no responsibility for updating any forward-looking statements to reflect events or circumstances that may arise after the date of this report, except as required by applicable law.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Overview

We are a clinical-stage, precision medicine pharmaceutical company focused on developing novel anti-cancer therapeutics for patients with high unmet medical need. We were founded on the innovation of our novel Drug Response Predictor (DRP®) platform. The DRP® technology is designed to define the gene expression signatures in cancer cells that predict the cancer cell’s sensitivity to a specific cancer therapeutic. Once defined, the DRP® gene expression signature can then be assessed in cancer tissue biopsies from patients to identify those cancers that share this signature of drug sensitivity, and by extension, to identify those patients who may then be most likely to receive benefit from that specific anti-cancer therapeutic. We have developed and published DRP® signatures for dozens of anti-cancer therapeutics. Ideally, by using DRP to identify the patients most likely to benefit clinically from a given therapeutic, clinical development of that therapeutic can be focused on a smaller, more responsive patient population, which would allow for smaller, cheaper and quicker trials while also enhancing the probability of clinical and regulatory success for that therapeutic. Historically, we have generated DRP signatures for numerous anti-cancer therapeutics and had in-licensed numerous assets for DRP-guided development, including Liposomal CisPlatin (LiPlaCis), Irofulven and dovitinib as well as the novel PARP/tankyrase inhibitor, stenoparib.

Recent Developments

Share Repurchase Plan

On March 3, 2025, the board of directors approved a share repurchase program, with authorization to purchase up to $5 million of the Company’s outstanding shares of common stock. For the three months ended September 30, 2025, the Company repurchased 145,061 shares for an aggregate cost of $140,038 inclusive of all transaction fees. For the nine months ended September 30, 2025 and 2024, the total proceeds used to repurchase 2,600,763 and 0 shares were $2,705,550 inclusive of $52,015 in fees and $0, respectively. As of September 30, 2025, there is $2,294,450 remaining for share repurchases under the share repurchase program.

Changes in Leadership

On July 1, 2025, Jeffrey S. Ervin was appointed to the office of Chief Financial Officer of the Company, replacing Alexander Epshinsky upon his resignation on June 30, 2025.

FDA Fast Track Designation

On August 26, 2025, the Company announced the FDA granted Fast Track designation status for Stenoparib for the treatment of advanced ovarian cancer. The FDA's Fast Track designation is intended to expedite the development and review of drugs that treat serious conditions and fill an unmet medical need. This designation enables more frequent interactions with the FDA throughout the drug development process and potentially provides eligibility for accelerated approval, priority review, and rolling review if relevant criteria are met.

PIPE Investment

On September 22, 2025, the Company entered into a Securities Purchase Agreement with a certain accredited investor, pursuant to which the Company agreed to sell the shares and/or prefunded warrants to the investor, in a private placement transaction. The Company agreed to issue and sell 1,562,500 shares of the Company’s common stock for $1.60 per Share, and/or prefunded warrants to purchase one share of common stock per prefunded warrant, at an offering price of $1.60 per prefunded warrant, for gross proceeds to the Company of approximately $2.5 million, before deducting $0.05 million in legal fees and expenses.

Risks and Uncertainties

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

Recently Issued Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies”, to our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report for a discussion of recent accounting pronouncements.

Financial Operations Overview

Since our inception in September 2004, we have focused substantially all our resources on conducting research and development activities, including drug discovery and preclinical studies, establishing, and maintaining our intellectual property portfolio, the manufacturing of clinical and research material, hiring personnel, raising capital and providing general and administrative support for these operations. In recent years, we have recorded very limited revenue from collaboration activities, or any other sources. We have funded our operations to date primarily from convertible notes and the issuance and sale of our securities.

We have incurred net losses in each year since inception. Our net losses were $7.7 million and $17.1 million for the nine months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, we had an accumulated deficit of $126.8 million and cash and cash equivalents of $16.9 million. Substantially all our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses over at least the next several years. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

• advance stenoparib through clinical trials;
• pursue regulatory approval of stenoparib;
• operate as a public company;
• continue our preclinical programs and clinical development efforts;
• continue research activities for stenoparib; and
• manufacture supplies for our preclinical studies and clinical trials.

Components of Operating Expenses

Research and Development Expenses

Research and development expenses include:

• expenses incurred under agreements with third-party contract organizations, and consultants;
• costs related to production of drug substance, including fees paid to contract manufacturers;
• laboratory and vendor expenses related to the execution of preclinical trials; and
• employee-related expenses, which include salaries, benefits, and stock-based compensation

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We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks and estimates of services performed using information and data provided to us by our vendors and third-party service providers. Non-refundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and accounted for as prepaid expenses. The prepayments are then expensed as the related goods are delivered and as services are performed. To date, most of these expenses have been incurred to advance our lead drug candidate stenoparib.

We expect our research and development expenses on stenoparib to increase substantially for the foreseeable future as we continue to invest to accelerate stenoparib in clinical trials designed to attain regulatory approval. We expect additional costs in research and development activities as we continue to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our drug candidate is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of stenoparib.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, facilities costs, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, and accounting services. Personnel-related costs consist of salaries, benefits, travel, insurance and stock-based compensation. Facilities costs consist of rent and maintenance of facilities. We expect our general and administrative expenses to increase for the foreseeable future due to anticipated increases in headcount to advance stenoparib and as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional services.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited)

($ in thousands)

Research and Development Expenses

For the three months ended September 30, 2025, compared to September 30, 2024

Research and development expenses increased $0.2 million primarily due to implementation costs and supplies of the Phase II clinical trial of stenoparib. These expenses are recognized at the time of purchase.

For the nine months ended September 30, 2025, compared to September 30, 2024

Research and development expenses increased over $0.7 million with the launch and expansion of the Phase II clinical trial to accelerate development of stenoparib in Advanced Ovarian Cancer. The increase in research and development expenses was primarily related to an increase in study costs of $0.3 million. A staffing increase of $0.8 million was partially offset by a $0.5 million reduction of contractor and consulting costs.

General and Administrative Expenses

For the three months ended September 30, 2025, compared to September 30, 2024

General and administrative expenses decreased by $0.3 million for the three months ended September 30, 2025, compared to September 30, 2024. The decrease was primarily due to a decrease of $0.3 million in professional services.

For the nine months ended September 30, 2025, compared to September 30, 2024

General and administrative expenses decreased by $1.2 million for the nine months ended September 30, 2025, compared to September 30, 2024. The decrease was primarily due to a $1.6 million decrease in professional services and an increase in $0.6 million of staffing and other administrative charges including non-cash equity compensation.

Other income (expense)

For the three months ended September 30, 2025, compared to September 30, 2024

For the three months ended September 30, 2025, net other income decreased $0.6 million from the comparable quarter. Interest income decreased $0.1 million and the foreign exchange impact was $0.5 million.

For the nine months ended September 30, 2025, compared to September 30, 2024

Other income was $1.8 million for the nine months ended September 30, 2025, consisting primarily of $1.3 million in foreign exchange gains. Other income for the nine months ended September 30, 2024 was $2.5 million, when $2.7 million was recognized in a change in fair value adjustment of derivative and warrant liabilities. The remaining difference for the comparable period was the $0.3 million increase of interest income and $0.4 million decrease in interest expense.

Liquidity, Capital Resources and Plan of Operations

Since our inception through September 30, 2025, our operations have been financed primarily by the sale of convertible promissory notes and the sale and issuance of our securities. As of September 30, 2025, we had $16.9 million in cash and cash equivalents and an accumulated deficit of $126.8 million.

Our primary use of cash is to fund operating expenses, which consist of research and development as well as regulatory expenses clinical programs for stenoparib, and to a lesser extent, general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

On March 21, 2024, we commenced an at the market offering of shares of our common stock. During the nine months ended September 30, 2025, we sold 9,719,173 shares of our common stock for net proceeds of $9.7 million. The at-the-market offering was terminated as of March 31, 2025. We believe that our current cash balance is sufficient to fund operations through at least the next 12 months from the date of this Quarterly Report. We may need to seek additional capital through the sale of our securities or other sources to carry out all of our planned research and development and potential commercialization activities. There are no assurances, however, that we will be successful in raising additional working capital, or if we are able to raise additional working capital, we may be unable to do so on commercially favorable terms. Our failure to raise capital or enter into other such arrangements if and when needed would have a negative impact on our business, results of operations and financial condition and our ability to develop stenoparib.

We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our drug candidate and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing, or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, to complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval for stenoparib, as well as to build the sales, marketing, and distribution infrastructure that we believe will be necessary to commercialize stenoparib, if approved, we may require substantial additional funding in the future.

Contractual Obligations and Commitments

We enter into agreements in the normal course of business with vendors for preclinical studies, clinical trials, and other service providers for operating purposes. We have not included these payments in a table of contractual obligations since these contracts are generally cancellable at any time by us following a certain period after notice and therefore, we believe that our non-cancellable obligations under these agreements are not material.

Cash Flows

($ in thousands)

Operating Activities

Net cash and cash equivalents used in operating activities was $11.6 million for the nine months ended September 30, 2025, primarily derived from our $7.9 million net loss, a $2.5 million settlement payment to the Securities and Exchange Commission, and a $1.1 million decrease in operating assets and liabilities.

Net cash and cash equivalents used in operating activities was $14.1 million for the nine months ended September 30, 2024, primarily comprised of our $17.1 million net loss, $3.8 million increase in operating assets and liabilities, $2.7 million change in fair value of warrant liability and $0.4 million in deferred income taxes, partially offset by a $9.7 million impairment of intangible assets and $0.2 million in non-cash interest expense.

Financing Activities

Net cash and cash equivalents provided by financing activities was $10.9 million for the nine months ended September 30, 2025. The Company sold an aggregate of 9,719,173 shares of its common stock from the ATM resulting in net proceeds of $9.7 million, received an ATM receivable balance of $1.4 million, and sold shares and prefunded warrants representing 1,562,500 shares of our common stock for proceeds of $2.5 million. However, the Company repurchased 2,600,763 common shares as part of a share repurchase program for $2.7 million.

Net cash and cash equivalents provided by financing activities was $32.6 million for the nine months ended September 30, 2024, due to net proceeds from the sale of 2,556,927 shares of stock.

Operating Capital and Capital Expenditure Requirements

We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated expenditures and commitments for the next twelve months. Our estimate as to how long we expect our cash to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based upon our unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2025 and 2024, and our audited consolidated financial statements for the years ended December 31, 2024 and 2023, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Our significant accounting policies are described in the notes to our consolidated financial statements for the year ended December 31, 2024 included in the Form 10-K, and there have been no significant changes to our significant accounting policies during the nine months ended September 30, 2025. These unaudited condensed interim consolidated financial statements should be read in conjunction with our audited financial statements and accompanying notes.

Recently Issued Accounting Standards Not Yet Effective or Adopted

See Note 2 to our Financial Statements for a discussion of recently issued accounting standards not yet effective of adopted.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act of 1934, as amended (the “Exchange Act”) and are not required to provide the information under this item.

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, as of the end of the period covered by this Financial Report, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, relating to the Company, including our consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded there to be a material weakness in internal control over financial reporting as of June 30, 2025 due to the material weaknesses described below.

Plan to Remediate Material Weakness

Management has identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in a company’s internal control over financial reporting such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements will not be prevented or detected on a timely basis. The Company identified a material weakness in its internal controls related to the Company’s accounting of the share repurchase plan that was initiated in quarter ended June 30, 2025. To address the material weakness, management, under the oversight of the audit committee, has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting:

• The Company plans to update our internal controls and implement new policy and procedures measures to improve internal controls over financial reporting.
• The Company is in process of implementing enhanced review processes to ensure timely identification of appropriate accounting related to all contractual agreements.

Such material weaknesses and control deficiencies will not be remediated until the Company’s remediation plan has been fully implemented, and it has concluded that its internal controls are operating effectively for a sufficient period of time.

We can offer no assurance that these initiatives will ultimately have the intended effects.

Inherent Limitations of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

Other than the material weakness determination described above and the commencement of the Company’s remediation activities in connection therewith, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The risk factors set forth in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, and in Part II, Item 1A Risk Factor in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, except as set forth below.

We have identified material weaknesses in our internal control over financial reporting, which could affect our ability to ensure timely and reliable financial reports and weaken investor confidence in our financial reporting.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2025. Based on such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures contained a material weakness as of June 30, 2025, due to the Company having inadequate internal control over financial reporting. We may also identify material weaknesses or other deficiencies in our disclosure controls and procedures in the future.

A material weakness in internal control over financial reporting is a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis. Material weaknesses in internal control over financial reporting could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

To address this material weakness, management plans to devote significant effort and resources to the remediation and improvement of its internal controls over financial reporting by updating internal controls and implement new policy and procedures measures to improve internal controls and financial reporting. We will also implement enhanced review processes to ensure timely identification of appropriate accounting related to all contractual arrangements. These material weaknesses will not be considered remediated until our controls are effectively designed and operational for a sufficient period of time, tested, and management concludes that these controls are operating effectively.

Failing to develop or maintain effective internal control over financial reporting may result in a misstatement of our financial statements or cause investors to lose confidence in us, which could have a material adverse effect on our business, financial condition or results of operations. These remediation measures may be time consuming and costly, and we can offer no assurance that these initiatives will ultimately have the intended effects.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We must design our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.