Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provide information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report. In addition to historical financial information, this discussion contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report. Unless otherwise indicated or the context otherwise requires, references in this Management's Discussion and Analysis of Financial Condition and Results of Operations section to the "Company," "Allarity," "we," "us," "our," and other similar terms refer to Allarity Therapeutics, Inc. and its consolidated subsidiaries.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission (the "SEC"), to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

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.

During 2024, Thomas H. Jensen, co-founder of Allarity, was permanently installed as Chief Executive Officer due to his extensive experience not only with the core DRP® platform technology but also with capital fund raising. Mr. Jensen was tasked with streamlining the organization and its finances. To help Mr. Jensen re-focus our clinical development program, we also added a new President and Chief Development Officer, Jeremy R. Graff, PhD, who was brought in with deep experience in cancer drug development, including nearly 17 years at Eli Lilly and Company and 10 more years in various C-suite roles in biotech. During 2025, Jeffrey Ervin was hired as Chief Financial Officer. He has a combined seven years of experience as CEO and CFO of Nasdaq- and NYSE-listed companies.

We are now singularly focused on the development of stenoparib and the parallel development of the stenoparib-DRP® as a companion diagnostic. All other assets including dovitinib, Irofulven and LiPlaCis, were terminated and are no longer part of our portfolio. Stenoparib was in-licensed with exclusive world-wide rights from the Japanese Pharmaceutical company, Eisai Pharmaceuticals. Stenoparib is a novel, dual inhibitor of poly-ADP-ribose polymerase (PARP1/2) as well as tankyrases, enzymes critically important in the WNT cancer cell survival pathway. Stenoparib is currently being explored in a phase 2 clinical trial in patients with advanced, recurrent ovarian cancer who have been pre-selected for enrollment using the stenoparib-DRP®. Emerging clinical data from this ongoing trial in heavily pre-treated, advanced ovarian cancer patients show promising clinical benefit including a patient with a complete, confirmed response (i.e., absence of active disease by RECISTv1.1 criteria) as well as two patients with ongoing stable disease still on therapy more than 14 months. These compelling data in heavily pre-treated ovarian cancer patients have now prompted us to design a new clinical protocol, guided by key gynecologic oncology experts, to deepen and enrich the understanding of the clinical benefit from stenoparib treatment while also advancing the stenoparib- DRP® as a companion diagnostic used to select patients for stenoparib treatment.

Recent Developments

Authorized Share Decrease

On September 9, 2024, we filed the Sixth Certificate of Amendment with the Secretary of State of the State of Delaware to decrease the number of authorized shares from 750,500,000 to 250,500,000, and to decrease the number of our common stock from 750,000,000 to 250,000,000. The amendment was approved by our stockholders at the 2024 annual meeting held on September 3, 2024.

Novartis Termination Notice

On January 26, 2024, we received a termination notice from Novartis Pharma AG, a company organized under the laws of Switzerland ("Novartis") due to a material breach of that certain license agreement dated April 6, 2018, as amended to date (the "License Agreement"). Accordingly, under the terms of the License Agreement, we ceased all development and commercialization activities with respect to all licensed products, all rights and licenses granted by Novartis to us reverted to Novartis; and all liabilities due to Novartis became immediately due and payable inclusive of interest which is continuing to accrue at 5% per annum. There were no payments made to Novartis in 2024. As of December 31, 2025, the liability is recorded as a current liability on our consolidated balance sheets as follows: $3.6 million in accounts payable, $0.5 million interest recorded as accrued expenses, and $1.4 million in convertible promissory notes and accrued interest.

SEC Investigation

On July 19, 2024, we received a "Wells Notice" from the Staff of the SEC relating to our previously disclosed SEC investigation. The Wells Notice relates to our disclosures regarding meetings with the United States Food and Drug Administration (the "FDA") regarding our NDA for Dovitinib or Dovitinib-DRP, which was submitted to the FDA in 2021. We understand that all conduct relating to the SEC Wells Notice occurred during or prior to fiscal year 2022. We also understand that three of our former officers received Wells Notices from the SEC relating to the same conduct. A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. The Wells Notice informed us that the SEC Staff has made a preliminary determination to recommend that the SEC file an enforcement action against us that would allege certain violations of the federal securities laws. On March 13, 2025, we issued a press release that we have reached a final settlement with the SEC relating to our previously disclosed SEC investigation, and as part of the settlement, we paid a one-time civil penalty of $2.5 million in April 2025 and all regulatory/legal challenges related to those issues are now concluded.

Class Action

On September 13, 2024, a purported class action captioned Osman Mukeljic v. Allarity Therapeutics, Inc., et al, 1:24-cv-06952, was filed in the United States District Court for the Southern District of New York against us and certain of our current and former officers. The complaint alleged, among other things, that defendants made false and misleading statements and/or failed to disclose information related to Dovitinib NDA's continued regulatory prospects and purported misconduct in connection with the Dovitinib NDA and/or the Dovitinib-DRP PMA. The complaint asserted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against all defendants as well as violations of Section 20(a) of the Exchange Act against the individual defendants. On February 26, 2025, we issued a press release announcing the dismissal of this class action lawsuit, resolving that matter favorably for the Company.

Funding and Capital Resources

Since our inception through December 31, 2025, our operations have been financed primarily by the sale of preferred stock, convertible promissory notes, and the sale and issuance of our common shares.

Since inception, we have had significant operating losses. Our net loss was $11.2 million and $24.5 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had $14.7 million in cash, and an accumulated deficit of $130.2 million. Our primary use of cash is to fund operating expenses, which consist of research and development as well as regulatory expenses related to advancing our therapeutic candidate, stenoparib, in addition to 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.

We expect that our current cash is sufficient to fund operations through at least the next 12 months from the date of this Annual Report. We have based this estimate on assumptions that may prove wrong, and we could use our capital resources sooner than we currently expect. We will need to secure additional funding to carry out potential future pre-clinical, clinical, and commercialization activities. Until we can generate substantial revenue from product sales, if that occurs, we plan to finance our activities through equity sales, debt financing, or other capital sources, including collaborations or strategic transactions. However, we may face challenges in raising additional funds or securing favorable terms for such agreements. If we fail to secure necessary capital or agreements in a timely manner, we may need to significantly delay, reduce, or halt the development and commercialization of one or more programs which would adversely affect our business prospects and our ability to continue operations.

Given the inherent risks in product development, we cannot accurately predict the timing or magnitude of increased expenses or when we might achieve profitability. Even if we successfully generate product sales, profitability is not guaranteed. If we fail to achieve or sustain profitability, we may be compelled to reduce or terminate operations at planned levels.

In the year ended December 31, 2025, we received $10.9 million, net, from financing activities inclusive of: $14.0 million from equity issuances and $3.2 million of stock repurchases.

In the year ended December 31, 2024, we received $37.3 million in proceeds from ATM sales net of issuance costs, $1.3 million in proceeds from 3i promissory notes, and $2.9 million in proceeds from the issuance of Convertible Redeemable Series A Preferred Stock; and we repaid $1.3 million of 3i promissory notes, and redeemed $3.5 million of Convertible Redeemable Series A Preferred Stock.

3i Convertible Senior Promissory Notes (2024)

During the year ended December 31, 2024, we entered into a Securities Purchase Agreement ("SPA") with 3i, pursuant to which three senior convertible promissory notes (the "2024 Notes") were issued as follows:

	●	On January 18, 2024, in an aggregate principal amount of $440,000 due on January 18, 2025, and with a set conversion price of $268.50 per share, for an aggregate purchase price of $400,000, representing an approximate 10% original issue discount (the "First Note").
	●	On February 13, 2024, in an aggregate principal amount of $440,000 due on February 13, 2025, and with a set conversion price of $243.00 per share, for an aggregate purchase price of $400,000, representing an approximately 10% original issue discount (the "Second Note").
	●	On March 14, 2024, in an aggregate principal amount of $660,000 due on March 14, 2025, and with a set conversion price of $210.00 per share, for an aggregate purchase price of $600,000, representing an approximately 10% original issue discount (the "Third Note").

We agreed to pay interest to 3i on the aggregate unconverted and then outstanding principal amount of the 2024 Notes at the rate of 8% per annum with interest payments commencing one month after initial receipt of net proceeds.

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

Amendments to the Certificate of Designation of Series A Preferred Stock

On January 14, 2024, pursuant to the terms of the First Note, we modified the conversion price of the 3i Exchange Warrants from $600.00 to $268.50, thereby increasing the number of Exchange Warrants outstanding from 7,346 at December 31, 2023 to 16,411 outstanding at January 14, 2024. Also on January 14, 2024, the conversion price of the outstanding 1,417 shares of Series A Preferred Stock was revised from $600.00 to $268.50. We filed the Fifth Certificate of Amendment to Amended and Restated COD (the "Fifth Amendment") with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $268.50. As of January 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the 1,417 Series A Preferred Stock outstanding at $2.0 million versus their carrying value of $1.7 million. Accordingly, we had recorded a deemed dividend of $0.2 million on January 14, 2024. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $268.50 per share results in the 1,417 shares being convertible into 5,699 shares of common stock as of January 14, 2024.

On February 13, 2024, pursuant to the terms of the Second Note, we modified the conversion price of the 3i Exchange Warrants from $268.50 to $243.00 and thereby increased the number of Exchange Warrants outstanding from 16,411 on January 18, 2024, to 18,137 on February 13, 2024. We filed the Sixth Certificate of Amendment to Amended and Restated COD (the "Sixth Amendment") with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $243.00. As of February 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the then 1,296 Series A Preferred Stock outstanding and concluded there was a gain on extinguishment of $0.1 million. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $243.00 per share results in the 1,296 shares being convertible into 16,453 shares of common stock.

On March 14, 2024, pursuant to the terms of the Third Note, we modified the conversion price of the 3i Exchange Warrants from $243.00 to $210.00 and thereby increased the number of Exchange Warrants outstanding from 18,137 on February 13, 2024, to 27,648 on March 14, 2024. We filed the Seventh Certificate of Amendment to Amended and Restated COD (the "Seventh Amendment") with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $210.00. As of March 14, 2024, we used the Black-Scholes option pricing model to determine the fair value of the then 1,296 Series A Preferred Stock outstanding and concluded there was a gain on extinguishment of $0.1 million. At a stated value of $1.1 million for each share of Series A Preferred Stock, the revised price of $210.00 per share results in the 1,215 shares being convertible into 17,843 shares of common stock.

During the period April 1, 2024, through May 2, 2024, we had further amended the conversion prices of the Series A Convertible Preferred Stock, the Exchange Warrants and the 2024 Notes to equal the then current last sale price of shares of our common stock of $34.50 as of May 1, 2024. 3i exercised its option to convert 1,417 shares of Series A Preferred Stock for 14,376,690 shares of common stock at fair value of $1.8 million. As of December 31, 2024, there were no issued and outstanding shares of Series A Preferred Stock.

ATM Facility

On March 19, 2024, the Company entered into an At-The-Market Issuance Sales Agreement, as amended (the "Sales Agreement") with Ascendiant Capital Markets, LLC ("Ascendiant") pursuant to which, the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, par value $0.0001 per share, having an aggregate gross sales price of up to $50 million, to or through Ascendiant. The offer and sale of the shares will be made pursuant to a previously filed shelf registration statement on Form S-3 (File No. 333-275282), originally filed with the SEC on November 2, 2023 and declared effective by the SEC on November 29, 2023, and the related prospectus supplement dated September 9, 2024 and filed with the SEC on such date pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act"). On May 2, 2024, the Company's public float increased above $75.0 million and, as a result, the Company was not subject to the limitations contained in General Instruction I.B.6 of Form S-3.

Under the Sales Agreement, Ascendiant may sell shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act. Ascendiant will use commercially reasonable efforts to sell the shares from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company agreed to pay Ascendiant a commission of 3.0% of the gross proceeds from the sales of shares sold through Ascendiant under the Sales Agreement and has provided Ascendiant with customary indemnification and contribution rights. The Company also agreed to reimburse Ascendiant for certain expenses incurred in connection with the Sales Agreement. The Company and Ascendiant may each terminate the Sales Agreement at any time upon specified prior written notice.

For the year ended December 31, 2025, the Company sold 9,719,173 shares of its common stock for net proceeds of $9.7 million. For the year ended December 31, 2024, the Company sold an aggregate of 6,953,259 shares of its common stock pursuant to the Sales Agreement, resulting in net proceeds of approximately $38.8 million, after deducting underwriting discounts. The Sales Agreement was fully utilized and terminated as of December 31, 2025.

August 2024 Series A Convertible Redeemable Preferred Stock

On August 19, 2024 (the "Closing Date") we entered into a Securities Purchase Agreement (the "August 2024 SPA") with certain purchasers (the "August 2024 Purchasers"), pursuant to which we issued and sold, in a private placement (the "August 2024 Offering"), 35,000 shares of our Series A Convertible Redeemable Preferred Stock, par value $0.0001 per share (the "August 2024 Preferred Stock"), for net proceeds of approximately $2.9 million, after the deduction of discounts, fees and offering expenses.

On the Closing Date, we filed a certificate of designation (the "August 2024 COD") with the Secretary of the State of Delaware designating the rights, preferences and limitations of the August 2024 Preferred Stock. Under the August 2024 COD, for purposes of determining the presence of a quorum at any meeting of the stockholders of Allarity at which the August 2024 Preferred Stock are entitled to vote and the voting power of the August 2024 Preferred Stock, each holder of the August 2024 Preferred Stock shall be entitled to a number of votes equal to shares of our common stock into which such August 2024 Preferred Stock are then convertible, disregarding, for such purposes, any limitations on conversion. The August 2024 Preferred Stock shall be entitled to vote on each matter submitted to a vote of the stockholders generally and shall vote together with the common stock and any other class or series of capital stock entitled to vote thereon as a single class and on an as converted to the common stock basis.

The holders of the August 2024 Preferred Stock are entitled to dividends, on an as-if converted basis, equal to dividends actually paid, if any, on the common stock. The August 2024 Preferred Stock is convertible, at the option of the holders and, in certain circumstances, by us, into common stock, as determined by dividing the net purchase price of $90 per share by the conversion price of $5.10, at the option of the holders.

On the Closing Date, we entered into a Registration Rights Agreement (the "August 2024 RRA") with the August 2024 Purchasers, pursuant to which we agreed to file a registration statement with the SEC, to register for resale the common stock issuable upon the conversion of the August 2024 Preferred Stock. The registration statement was filed with the SEC on August 30, 2024.

In connection with the August 2024 Offering, we paid $0.2 million to Ascendiant Capital Markets, LLC, our placement agent. All of the August 2024 Preferred Stock was redeemed in September 2024. As a result of the redemption of the August 2024 Preferred Stock, we presented a deemed dividend of $0.6 million during the twelve months ended December 31, 2024.

The Private Placement (PIPE Financing) and Amendments to the Certificate of Designation of Series A Preferred Stock

On January 14, 2024, pursuant to the terms of the January 14th, 2024, 3i, LP Bridge Loan, we modified the conversion price of the 3i Exchange Warrants from $1.00 to $0.4476, thereby increasing the number of Exchange Warrants outstanding from 4,407,221 at December 31, 2023, to 9,846,339 outstanding at January 14, 2024. Also on January 14, 2024, the conversion price of the outstanding 1,417 shares of Series A Preferred Stock was revised from $1.00 to $0.4476. We filed the Fifth Amendment with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $0.4476. At a stated value of $1,080 for each share of Series A Preferred Stock, the revised price of $0.4476 per share results in the 1,417 shares being convertible into 3,419,035 common shares as of January 14, 2024.

On February 13, 2024, pursuant to the terms of the February 13, 2024, 3i, LP Bridge Loan, we modified the conversion price of the 3i Exchange Warrants from $0.4476 to $0.4050 and thereby increased the number of Exchange Warrants outstanding from 9,846,339 on January 18, 2024, to 10,882,028 on February 13, 2024. We also agreed to amend the conversion price of the Series A Preferred Stock to equal $0.405 as soon as practicable. We filed the Sixth Amendment with the Secretary of State of the State of Delaware to reflect the new conversion price of the Series A Preferred Stock of $0.405. At a stated value of $1,080 for each share of Series A Preferred Stock, the revised price of $0.405 per share results in the 1,296 shares being convertible into 3,456,000 common shares.

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 it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, 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. Product candidates 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.

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. 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.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of financial condition and results of operations is based upon our audited consolidated financial statements for the years ended December 31, 2025 and 2024, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues, expenses, and taxes during the reporting years. Actual results could differ from those estimates or assumptions.

While our significant accounting policies are described in the notes to our consolidated financial statements for the years ended December 31, 2025 and 2024, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Research contract costs and accruals

We have entered into various research and development contracts with companies both inside and outside of the United States. These agreements are generally cancellable, and related payments are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from our estimates. Our historical accrual estimates have not been materially different from the actual costs.

Convertible debt instruments

We follow ASC 480-10, Distinguishing Liabilities from Equity in its evaluation of the accounting for a hybrid instrument. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception; (b) variations in something other than the fair value of the issuer's equity shares; or (c) variations inversely related to changes in the fair value of the issuer's equity shares. Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with remeasurements reported in change on fair value expense in the accompanying Statements of Operations and Comprehensive Loss.

Additionally, we account for certain convertible debt ("Convertible Notes") issued under the fair value option election of ASC 825, Financial Instruments wherein the financial instrument is initially measured at its issue-date estimated fair value and then subsequently re-measured at estimated fair value on a recurring basis at each reporting period date. The estimated fair value adjustment is recognized as other income (expense) in the accompanying consolidated statements of operations and the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk is recognized as a component of other comprehensive loss. Convertible Notes are settled with shares at fair value of the stock issued with any differences recorded to other income (expense), as a gain or (loss) on extinguishment.

Warrants

When we issue warrants we evaluate the proper balance sheet classification to determine classification as either equity or as a derivative liability on the consolidated balance sheets. In accordance with ASC 815-40, Derivatives and Hedging-Contracts in the Entity's Own Equity ("ASC 815-40"), we classify a warrant as equity so long as it is "indexed to our equity" and several specific conditions for equity classification are met. A warrant is not considered indexed to our equity, in general, when it contains certain types of exercise contingencies or adjustments to exercise price. If a warrant is not indexed to our equity or it has net cash settlement that results in the warrants to be accounted for under ASC 480, Distinguishing Liabilities from Equity, or ASC 815-40, it is classified as a derivative liability, which is carried on the Consolidated Balance Sheet at fair value with any changes in its fair value recognized immediately in the Consolidated Statement of Operations and Comprehensive Loss. As of December 31, 2025, and 2024, we had warrants outstanding for stock-based compensation that were classified as equity, and outstanding investor warrants that were classified as derivative liabilities and classified as "Warrant liability" in the consolidated balance sheets.

Stock-based compensation

We account for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation ("ASC 718"). ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in our consolidated statements of operations and comprehensive loss.

We record the expense for option awards using either a graded or straight-line vesting method. We account for forfeitures as they occur. For stock-based awards granted to employees, directors and non-employee consultants, the measurement date is the date of grant. The compensation expense is then recognized over the requisite service period, which is the vesting period of the respective award.

We review stock award modifications when there is an exchange of original award for a new award. We calculate the incremental fair value based on the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. We immediately recognize the incremental value as compensation cost for vested awards and recognizes, on a prospective basis over the remaining requisite service period, the sum of the incremental compensation cost and any remaining unrecognized compensation cost for the original award on the modification date.

The fair value of restricted stock units is based on the fair value of the Company's common stock on the date of the grant.

The fair value of stock options ("options") on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option's expected term and the price volatility of the underlying stock, to determine the fair value of the award. The Company applies the Black-Scholes model as it believes it is the most appropriate fair value method for all option awards. The Black-Scholes model requires several assumptions, of which the most significant are the share price, expected volatility and the expected award term.

Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the "simplified method" with the continued use of this method extended until such time the Company has sufficient exercise history. The Company has no foreseeable plans to pay dividends on its common stock, and therefore, uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasury bonds with equivalent terms. The expected share price volatility for the Company's common shares is estimated by taking the average historical price volatility for industry peers. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances.

The Company classifies stock-based compensation expense in its Consolidated Statements of Operations and Comprehensive Loss in the same way the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.

Financial Operations Overview

Since our inception in September of 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.

Since our inception of our predecessor, Allarity Therapeutics A/S, we have incurred losses and have an accumulated deficit of $130.2 million as of December 31, 2025. Our net losses were $11.2 million and $24.5 million for the years ended December 31, 2025 and 2024, respectively.

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.

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 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 stenoparib 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, 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 because of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services.

Results of Operations

Comparison of years ended December 31, 2025 and 2024

The following table summarizes our results of operations for the years ended December 31, 2025 and 2024:

		Year ended
		December 31,								Increase/
		2025				2024				(Decrease)
		(In thousands)
Revenue:
License Revenue		$	320			$	-			$	320
Total Revenue			320				-				320
Operating expenses:
Research and development			6,601				6,096				505
Impairment of intangible assets			-				9,703				(9,703	)
General and administrative			6,324				11,442				(5,118	)
Total operating costs and expenses			12,925				27,241				(14,316	)
Loss from operations			(12,605	)			(27,241	)			14,636
Other income (expense)											-
Interest income			801				533				268
Interest expenses			(185	)			(653	)			468
Foreign exchange gains (losses)			757				(212	)			969
Change in fair value adjustment of warrant derivative liabilities			1				2,677				(2,676	)
Total other income			1,374				2,345				(971	)
Loss before income tax expense (benefit)			(11,231	)			(24,896	)			13,665
Income tax expense (benefit)			-				(381	)			381
Net loss		$	(11,231	)		$	(24,515	)		$	13,284

Revenues

We generated $0.3 million of service revenue for the year ended December 31, 2025 from the license of DRP testing services. There was no revenue for the year ended December 31, 2024.

Research and Development Expenses

Our research and development costs were primarily for stenoparib. A breakdown by nature of type of expense for the years ended December 31, 2025 and 2024, is provided below.

		Year ended
		December 31,								Increase/
		2025				2024				(Decrease)
		(In thousands)
Research study expenses		$	3,091			$	2,906			$	185
Tax credit			(833	)			(798	)			(35	)
Milestone payments			-				150				(150	)
Manufacturing & supplies			1,549				1,715				(166	)
Contractors			340				855				(515	)
Staffing			2,333				1,197				1,136
Other			121				71				50
		$	6,601			$	6,096			$	505

The increase of $0.5 million in research and development cost was the result of a $0.5 million decrease in contractor spending, and an $1.1 million increase in staff costs. Manufacturing and research study expenses remained consistent year over year.

Impairment of Intangible Assets

For the year ended December 31, 2024, a full impairment charge of $9.7 million was applied against the intangible assets. There is no impairment charge nor any remaining intangible asset value as of the year ending December 31, 2025.

General and Administrative Expenses

General and administrative expenses decreased by $5.1 million for the year ended December 31, 2025, compared to the year ended December 31, 2024. The decrease was primarily due to a $5.7 million decrease in legal and professional fees which included a $2.5 million SEC settlement charge. General operating and IT costs decreased $0.1 million along with a $0.1 million drop in franchise tax expense, while other administrative cost increased $0.7 million with an increase of $0.2 million in personnel costs related to staff severance.

Other Income (Expense)

Other income of $1.4 million was recognized in the year ended December 31, 2025, and consisted primarily of a $0.2 million increase in interest income and decrease of interest expense ($0.5 million) due to an improved cash position for the company throughout the year. With no warrant liability during the year, a $2.7 million change in fair value adjustment of warrant derivative liabilities and change of $1.0 million foreign exchange gain comprise the $1.0 total decrease in other income from the prior year.

Other income of $2.3 million was recognized in the year ended December 31, 2024, which consisted primarily of a $2.7 million fair value adjustment of warrant derivative liabilities, and $0.5 million in interest income, partially offset by $0.7 million in interest expense and $0.2 million in foreign exchange loss.

Changes in the fair value of our derivative and warrant liabilities and convertible debt are measured using level 3 inputs as described in our consolidated financial statements.

Income taxes

During the years ended December 31, 2025, and 2024, we recognized no income tax and $0.4 million in income tax benefit, respectively.

Liquidity, Capital Resources and Plan of Operations

Cash Flows for the Years Ended December 31, 2025 and 2024

The following table summarizes our cash flows for the years indicated:

		Year Ended
		December 31,
(In thousands)		2025				2024
Total cash provided by (used in):
Operating activities		$	(14,820	)		$	(17,352	)
Investing activities			(8	)			(298	)
Financing activities			10,648				36,792
Effect of foreign exchange rates on cash			(667	)			225
Net increase (decrease) in cash		$	(4,846	)		$	19,367

Operating Activities

Net cash used in operating activities was approximately $14.8 million for the year ended December 31, 2025, primarily comprised of our $11.2 million net loss. The balance was due to a $2.7 million reduction in accrued expenses, a $1.1 million reduction in accounts payable, a $1.6 million increase of prepaid expenses, a $1.2 million unrealized foreign exchange gain, $0.2 million in common stock issued for services, $0.2 million non-cash interest expense, and $0.2 million change in operating assets and liabilities.

Net cash used in operating activities was approximately $17.4 million for the year ended December 31, 2024, primarily comprised of our $27 million net loss and $2.7 million reduction in fair value of warrant derivative liability, $0.4 million reduction in deferred income tax, and $0.1 million unrealized foreign exchange gain, partially offset by $9.7 million intangible asset impairment, $0.3 million in common stock issued for services, $0.2 million non-cash interest expense, $0.1 million stock-based compensation and $0.1 million change in operating assets and liabilities.

Investing Activities

There was eight thousand of investing activity for the year December 31, 2025. Net cash used in investing activities was approximately $0.3 million for the year ended December 31, 2024, due to $0.3 million in purchases of lab equipment.

Net cash provided by financing activities for the year ended December 31, 2025 was $10.9 million, primarily related to $14.0 million from equity issuances and $3.2 million of stock repurchases

Net cash provided by financing activities for the year ended December 31, 2024 was $36.8 million, primarily related to $38.8 million in proceeds from ATM sales of common stock net of issuance costs, $2.9 million in net proceeds from the issuance of Series A Convertible Redeemable Preferred Stock, and $1.3 million in proceeds from 3i debt promissory notes, partially offset by the $3.5 million redemption of Series A Convertible Redeemable Preferred Stock and repayment of $1.3 million of 3i debt promissory notes.

In January 2026, Allarity entered a stock purchase agreement providing up to $6 million in additional equity financing.

In February 2026, the Allarity board approved a stock repurchase plan of up to $5 million over a 12 month period upon the term expiration of the prior repurchase plan on March 1, 2026.

In March 2026, Allarity issued $20 million in promissory notes to Streeterville Capital as a debt financing.

Recently Issued Accounting Pronouncements

See the section titled in Note 2 to the Company's consolidated financial statements for the year ended December 31, 2025, appearing elsewhere herein.