2. Summary of Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in Form 10-K for the year ended December 31, 2025, that are of significance, or potential significance, to the Company.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared on an accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the ASC and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of our management, reflect all adjustments, which include only normal recurring adjustments, necessary to fairly state our financial position as of June 30, 2026, our results of operations and stockholders’ equity for the three and six months ended June 30, 2026 and 2025, and cash flows for the six months ended June 30, 2026 and 2025. The financial data and the other financial information disclosed in these notes to the condensed consolidated financial statements related to the three and six month period are also unaudited. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the year ending December 31, 2026 or for any other future annual or interim period. The consolidated balance sheet data as of December 31, 2025 was derived from our audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025 that was filed with the Securities and Exchange Commission (“SEC”), on March 30, 2026.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

ALLR Holdings, LLC was formed on  February 11, 2026, to be the designated entity for restricted cash proceeds from a promissory note.  All intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.

ALLR Sponsor, LLC was formed on April 10, 2026. The Company is the Subsidiary’s sole managing member and has the power to direct the activities that most significantly affect the Subsidiary’s economic performance. The Subsidiary was designed with insufficient equity at risk to finance its activities without additional subordinated financial support from the Company and therefore is a variable interest entity. The Company is the Subsidiary’s primary beneficiary because the Company has the power to direct the Subsidiary’s significant activities and has the obligation to absorb losses and the right to receive benefits that could potentially be significant to the Subsidiary. Accordingly, the accounts of the Subsidiary have been included in the Company’s condensed consolidated financial statements from the Subsidiary’s formation date, and all intercompany balances and transactions have been eliminated.

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 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 accrual for research and development expenses, share based compensation expense, promissory note and fair value of embedded derivatives, 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 considering 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.

Risks and Uncertainties

The Company is subject to risks common to early-stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to clinical effectiveness of products, commercialization of products, regulatory approvals, dependence on key products, key personnel and third-party service providers such as contract research organizations (“CROs”), protection of intellectual property rights, the need and ability to obtain additional financing and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements.

Derivative Financial Instruments 

The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. Derivative instruments are initially recorded at fair value on the grant date and re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. Derivative assets and liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. The Company accounted for the stock‑price‑linked features contained in the unsecured promissory note A-1, issued pursuant to the Note Purchase Agreement with Streeterville Capital, LLC, under the guidance at FASB ASC Topic 815. See Note 4.

Fair Value Measurement

The Company follows guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents and restricted cash, prepaid expenses and other current assets, accounts payable, accrued liabilities, and other short-term liabilities approximate fair value due to their relatively short maturities.

Non-financial assets such as property and equipment are evaluated for impairment and adjusted to fair value using Level 3 inputs only when impairment is recognized. Fair values are considered Level 3 when management makes significant assumptions in developing a discounted cash flow model based upon a number of considerations including projections of revenues, earnings, and a discount rate. To date, the Company has not recorded any adjustments to fair value related to impairment on property and equipment.

The unsecured promissory note A-1 contains stock-price linked features, including (i) a limited redemption feature that may accelerate principal repayment upon the Company's stock meeting specified price thresholds and (ii) a monitoring fee forgiveness feature that may reduce amounts otherwise payable upon sustained low stock price or trading volume conditions. Management determined these features are embedded derivatives that are not clearly and closely related to the debt host and therefore require bifurcation under ASC 815. At issuance, the embedded derivatives were bifurcated and recorded at fair value, with a corresponding reduction to the carrying amount of the unsecured promissory note A-1. The embedded derivative liabilities are remeasured at fair value each reporting period, with changes in fair value recognized in earnings. Fair value is estimated using valuation techniques that incorporate significant unobservable inputs, and, accordingly, the embedded derivatives are classified as Level 3 within the fair value hierarchy under ASC 820.

The embedded derivative liability arising under the A-1 Note is valued using a probability-weighted discounted cash flow model and Monte Carlo simulation framework with significant unobservable inputs including 91.0% expected equity volatility, a 30.5% risk-adjusted discount rate, and management's estimated probability of stock-price-based acceleration events (90% limited redemption scenario and 10% maturity settlement scenario). The fair value measurement incorporates projected stock-price paths, expected redemption activity, and the contractual monitoring fee forgiveness provisions. As of June 30, 2026, the estimated fair value of the limited redemption embedded derivative liability was $160,482, partially offset by a $32,814 monitoring fee forgiveness embedded derivative asset, resulting in a net embedded derivative liability of approximately $127,668.

The change in the fair value measurement using significant inputs (Level 3) for the six months ended June 30, 2026, is summarized below:

Foreign currency and currency translation

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 condensed consolidated statements of changes in stockholders’ equity as a component of accumulated other comprehensive loss.

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured 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 loss for the respective periods.

Adjustments that arise from exchange rate translations are included in other comprehensive loss in the consolidated statements of operations and comprehensive loss as incurred. During the three months ended June 30, 2026 and 2025, the Company recorded foreign exchange gains (losses) of ($0.1) million and $1.6 million, respectively. During the six months ended June 30, 2026, and 2025, the Company recorded foreign exchange gains (losses) of ($0.1) million and $1.7 million, respectively.

Concentrations of credit risk and of significant suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in financial institutions in amounts that could exceed government-insured limits. The Company does not believe it is subject to additional credit risks beyond those normally associated with commercial banking relationships. The Company has not experienced losses on its cash and cash equivalents accounts and management believes, based upon the quality of the financial institutions, that the credit risk regarding these deposits is not significant. The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply its requirements for supplies and raw materials related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or the availability of raw materials.

Cash and restricted cash

The Company maintains deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to amounts in excess of FDIC limits. The Company had restricted cash of $10.0 million on June 30, 2026 and $0 million on  December 31, 2025 (see Note 4).

Property, plant and equipment

Property, plant, and equipment are stated at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the respective assets as follows:

Accumulated other comprehensive loss

Accumulated other comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. The Company records unrealized gains and losses related to foreign currency translation and instrument specific credit risk as components of other accumulated comprehensive loss in the condensed consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2026 and 2025, the Company’s other comprehensive loss was $0.3 million and $1.8 million, and $0.3 million and $2.1 million, respectively, which was comprised of currency translation adjustments. 

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires new financial statement disclosures in tabular format, in the notes to financial statements, of specified information about certain costs and expenses. The amendments in this update do not change or remove current expense disclosure requirements. The amendments in this update are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of the new standard on its financial statement disclosures.