| Nature of Business and Summary of Significant Accounting Policies | 1.
Nature of Business and Summary of Significant Accounting Policies (a)
Organization Allarity
Therapeutics A/S (the “Company”) is a limited liability company domiciled in Denmark. The Company was incorporated under
the laws of Denmark on 9 September 2004. The Company’s principal operations are located at Venlighedsvej 1, 2970 Horsholm,
Denmark. The Company’s United States operations are located at 210 Broadway #201, Cambridge, MA 012139, United States
of America. (b)
Principal Activities Allarity
Therapeutics A/S develops drugs for the personalized treatment of cancer using drug specific companion diagnostics (cDx) generated by
its proprietary drug response predictor technology, DRP ® Allarity
Therapeutics A/S (Nasdaq First North Growth Market Stockholm: ALLR) develops drugs for the personalized treatment of cancer using drug-specific
companion diagnostics (cDx) generated by its proprietary drug response predictor technology, DRP ® (c)
Liquidity and Going Concern The
accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and
the satisfaction of liabilities and commitments in the ordinary course of business. The accompanying financial statements do not reflect
any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company
is unable to continue as a going concern. Pursuant
to the requirements of Accounting Standard Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise
substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial
statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s
plans that have not been fully implemented as of the date of these financial statements, and (1) is probable that the plan will
be effectively implemented within one year after the date the financial statements are issued, and (2) it is probable that the plan,
when implemented, will mitigate the relevant condition or events that raise substantial doubt about the entity’s ability to continue
as a going concern within one year after the date the financials are issued. Certain elements of the Company’s operating plan to
alleviate the conditions that raise substantial doubt are outside of the Company’s control and cannot be included in management’s
evaluation under the requirements of Accounting Standard Codification (ASC) 205-40. Since
inception, the Company has devoted substantially all of its efforts to business planning, research and development, clinical expenses,
recruiting management and technical staff, and securing funding via collaborations. The Company has historically funded its operations
with proceeds received from its collaboration arrangements, sale of equity capital and proceeds from sales of convertible notes. The
Company has incurred significant losses and has an accumulated deficit of $43.4 million as of September 30, 2021. As of the date of these
financial statements our cash is insufficient to fund our current operating plan and planned capital expenditures for at least the next
12 months. These conditions give rise to a substantial doubt over the Company’s ability to continue as a going concern. Management’s
plans to mitigate the conditions or events that raise substantial doubt include additional funding through public equity, private equity,
debt financing, collaboration partnerships, or other sources. There are no assurances, however, that the Company will be successful in
raising additional working capital, or if it is able to raise additional working capital, it may be unable to do so on commercially favorable
terms. The Company’s failure to raise capital or enter into other such arrangements if and when needed would have a negative impact
on its business, results of operations and financial condition and its ability to develop its product candidates. The
Company has entered into a Securities Purchase Agreement with 3i, LP, a Delaware limited partnership that provides for a $20 million
equity investment in the Company. Please refer to the subsequent event disclosures in note 18 for further information. Although
management continues to pursue its funding plans, there is no assurance that the Company will be successful in obtaining sufficient funding
to fund continuing operations on terms acceptable to the Company, if at all. Further, at the date of this filing the above noted 3i $20
million equity investment cannot be asserted as probable and is subject to close of the transaction. Accordingly, based upon cash on
hand at the issuance date of these financial statements the Company does not have sufficient funds to finance its operations for at least
twelve months from the issuance date and therefore has concluded that substantial doubt exists about the Company’s ability to continue
as a going concern. (d)
Basis of Presentation The
accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting
principles (“U.S. GAAP”). The accompanying interim financial statements as of September 30, 2021 and for the three and nine
months ended September 30, 2021 and 2020, and related interim information contained within the notes to the financial statements, are
unaudited. In management’s opinion, the unaudited interim consolidated financial statements have been prepared on the same basis
as the Company’s audited financial statements and include all adjustments (including normal recurring adjustments) necessary for
a fair statement of the financial statements. The condensed balance sheet at December 31, 2020, was derived from audited annual financial
statements but does not contain all of the footnote disclosures from the annual financial statements. These interim financial statements
should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Form S-4
for the year ended December 31, 2020 filed on August 20, 2021 and as amended. The results for the three and nine months ended September 30,
2021 are not necessarily indicative of the results expected for the full fiscal year or any interim period. (f)
Principles of Consolidation The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:
Name Country of Incorporation
Oncology Venture Product Development ApS Denmark
OV-SPV2 ApS Denmark
MPI Inc. United States
Oncology Venture US Inc. United States
Allarity Therapeutics, Inc. United States
Allarity Acquisition Subsidiary, Inc. United States All
intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation. (g)
Use of Estimates 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 and expenses during the reporting years. Significant estimates and assumptions reflected in these
consolidated financial statements include, but are not limited to, the fair value of the convertible loan, the accrual for research and
development expenses, revenue recognition, fair values of acquired intangible assets and impairment review of those assets, the useful
life of property, plant and equipment, share based compensation expense, provisions for contingencies and litigation, and income tax
uncertainties and valuation allowances. 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. Estimates are periodically reviewed in light of
reasonable changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known
and if material, their effects are disclosed in the notes to the consolidated financial statements. Actual results could differ from
those estimates or assumptions. (h)
Computation of Earnings (Loss) per Share The
Company computes net (loss) income per share in accordance with ASC Topic 260, “Earnings Per Share” (“ASC 260”)
and related guidance, which requires two calculations of net (loss) income attributable to the Company’s shareholders per share
to be disclosed: basic and diluted. Basic loss per share is derived by dividing net loss applicable to common stockholders by the weighted
average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the
potential exercise or conversion of securities, such as warrants, and convertible debt, which would result in the issuance of incremental
shares of common stock unless such effect is anti-dilutive. In calculating the basic and diluted net loss per share applicable to common
stockholders, the weighted average number of shares remained the same for both calculations due to the fact that when a net loss exists,
dilutive shares are not included in the calculation. (i)
Conversion of foreign currencies The
functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. The Company
and its subsidiaries operate mainly in Denmark and the United States. The functional currencies of the Company’s subsidiaries
are their local currency. The
Company’s reporting currency is the U.S dollar. The Company translates the assets and liabilities of its Denmark subsidiaries into
the U.S. dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange
rate in effect during each monthly period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment,
which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive (loss)
income. Monetary
assets and liabilities denominated in currencies other than the functional currency are re-measured into the functional currency at rates
of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are re-measured
into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net profit or loss for the respective periods. Adjustments
that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive
income (loss) in the consolidated statements of operations and comprehensive loss as incurred. (j)
Accumulated other comprehensive income (loss) Accumulated
other comprehensive income (loss) includes all changes in equity except those resulting from investments by owners and distributions
to owners, including accumulated foreign currency translation, and changes in instrument specific credit risk. During the three months
ended September 30, 2021 and 2020 the Company recorded accumulated foreign currency translation losses of ($939) and gains of $1,130
respectively. During the nine months ended September 30, 2021 and 2020 the Company recorded accumulated foreign currency translation
losses of ($1,785) and gains of $1,212 and instrument specific credit risk losses of ($9) and gains of $6 respectively. These amounts
have been recorded as a separate component of stockholders’ equity (deficit). (k)
Contingencies Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable
that a liability has been incurred and the amount can be reasonably estimated. At each reporting date, the Company evaluates whether
or not a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative
guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings as
general and administrative expense within the consolidated statements of operations and comprehensive loss. (l)
JOBS Act accounting election The
Company is an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (JOBS Act). Under
the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of
the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period
for complying with new or revised accounting standards that have different effective dates for public and private companies; however,
the Company may adopt new or revised accounting standards early if the standard allows for early adoption. (m)
Recently Issued Accounting Pronouncements Changes
to GAAP are established by the Financial Accounting Standards Board (the “FASB”) in the form of accounting standards updates
(“ASUs”) to the FASB’s Accounting Standards Codification. The
Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined not to be applicable or
are expected to have minimal impact on the Company’s consolidated financial position and results of operations. Adopted In
December 2019, the FASB issued ASU 2019-12, “Income Taxes — Simplifying the Accounting for Income Taxes”. The
ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles as well as clarifying and amending
existing guidance to improve consistent application. The amendments to this ASU are effective for fiscal years, and interim periods within
those fiscal years, beginning after December 15, 2020, with early adoption permitted. Depending on the amendment, adoption may be applied
on the retrospective, modified retrospective or prospective basis. The Company has adopted this standard on a prospective basis with
no significant impact upon its consolidated financial statements. In
August 2020, the FASB issued ASU No. 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models
required under current U.S. GAAP. ASU No. 2020-06 removes certain settlement conditions that are required for equity contracts to
qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU No. 2020-06
is effective for public companies for annual periods beginning after December 15, 2021, including interim periods within those fiscal
years. Early adoption is permitted for annual periods beginning after December 15, 2020, and interim periods within those fiscal years.
The Company has early adopted this standard as of January 1, 2021 on a modified retrospective basis with no significant impact on its
consolidated financial statements. Not
Yet Adopted In
May 2021, the FASB issued ASU No. 2021-04 — Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options — to clarify the accounting by issuers for modifications or exchanges of equity-classified warrants. The framework
applies to freestanding written call options, such as warrants, that were and remain equity classified by the issuer after the modification
and are not in the scope of another Codification Topic. The framework applies regardless of whether the modification is through an amendment
to the existing terms or issuance of a replacement warrant. The effect of the modification of the warrant is measured as the difference
in its fair value immediately before and after the modification. The effect is recognized in the same manner as if cash had been paid
as consideration. Additionally, other modifications may need to be accounted for as a cost to the issuing entity based on the substance
of the transaction. The Update is effective prospectively for fiscal years beginning after December 15, 2021 including interim periods
therein, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial
statements and related disclosures. |
