Galecto, Inc.

Notes to the Condensed Consol idated Financial Statements

1. DESCRIPTION OF BUSINESS, ORGANIZATION AND LIQUIDITY

Business and Organization

Galecto, Inc., together with its consolidated subsidiaries (the “Company” or “Galecto”), is a clinical-stage biotechnology company developing novel therapeutics that are designed to target the biological processes that lie at the heart of fibrotic diseases and cancer. The Company’s focus is on the development of small molecule inhibitors for the treatment of cancer and severe liver diseases.

As of June 30, 2025, the Company’s wholly owned subsidiaries were PharmAkea, Inc., a Delaware corporation (“PharmAkea”), Galecto Securities Corporation, a Massachusetts corporation, and Galecto Biotech AB, a Swedish company. Galecto Biotech ApS, a Danish operating company, is a wholly-owned subsidiary of Galecto Biotech AB.

Strategic Shift in Business Strategy

In September 2023, the Company undertook an organizational restructuring and determined to conduct a comprehensive exploration of strategic alternatives. In consultation with financial and legal advisors, a comprehensive strategic alternative review process began immediately and evaluated a broad range of options to maximize stockholder value through broad outreach to life sciences companies and a thorough process of evaluation of prospective strategic partners. This review of strategic alternatives resulted in the execution of the Bridge Purchase Agreement (as defined below) in October 2024 with Bridge Medicines LLC (“Bridge Medicines”) to acquirethe global rights to Bridge Medicines’ BRM-1420 program, a novel dual ENL-YEATS and FLT3 inhibitor for multiple genetic subsets of acute myeloid leukemia (“AML”), and assumed certain of Bridge Medicines’ liabilities associated with the acquired assets (the “Asset Purchase”).

As a result of the conclusion of the strategic alternatives review process, the Company’s focus is now on the development of GB3226 (formerly known as BRM-1420) and GB1211. As part of the strategic alternative review process, the Company determined not to further advance GB2064, its LOXL-2 inhibitor candidate.

Risks and Uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations, and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval, or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

Going Concern, Liquidity and Management Plans

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that these financial statements are issued. Based on current estimates of the Company’s expenses going forward, the Company expects that its existing cash and cash equivalents of$10.2 million as of June 30, 2025 will be insufficient to allow the Company to fund its current operating plan through at least the next twelve months from the issuance of these financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date these financial statements are issued. The Company has developed plans to mitigate this risk, which primarily consist of raising additional capital through some combination of equity or convertible debt financings and/or potential new collaborations, but there can be no assurances any such financing will be available when needed, on acceptable terms, or at all. If the Company is unable to secure adequate additional funding, it will need to reevaluate its operating plans and may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, delay, scale back, or eliminate some or all of its development programs, relinquish rights to its intellectual property on less favorable terms than it would otherwise choose, or cease operations entirely. These actions could materially impact the Company’s business, results of operations, and future prospects and the value of shares of its common stock, and investors may lose all or a part of their investment. In addition, attempting to secure additional financing may divert the time and attention of management from day-to-day activities and distract from the Company’s discovery and product development efforts.

Since inception, the Company has devoted substantially all its efforts to business planning, research and development, recruiting management and technical staff and raising capital, and has financed its operations primarily through the issuance of redeemable convertible preferred shares, debt financings, the Company’s initial public offering, and sales of the Company's common stock in "at-the-market" offerings.

As of June 30, 2025, the Company had an accumulated deficit of$283.5 million from recurring losses since inception in 2011. The Company has incurred recurring losses and has not generated revenue as no products have obtained the necessary regulatory approval in order to market products. The Company expects to continue to incur losses as a result of costs and expenses related to the Company’s clinical development and corporate general and administrative activities. The Company had negative cash flows from operating activities during the six months ended June 30, 2025 and 2024 of $4.7 million and $10.0 million, respectively, and current projections indicate that the Company will have continued negative cash flows for the foreseeable future as it continues to fund operating expenses. Net losses incurred for the three and six months ended June 30, 2025 were$3.4 million and$6.0 million, respectively. Net losses incurred for the three and six months ended June 30, 2024 were$5.3 million and$10.8 million, respectively.

As of June 30, 2025, the Company’s cash and cash equivalents amounted to$10.2 million, current assets amounted to $13.0 million and current liabilities amounted to $2.6 million. At December 31, 2024, the Company’s cash and cash equivalents amounted to $14.2 million, current assets amounted to $16.8 million, and current liabilities amounted to $1.2 million.

Reverse Stock Split

On August 29, 2024, the Company effected a 1-for-25 reverse stock split of its issued and outstanding common stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split. All fractional shares resulting from the reverse stock split were rounded up to the nearest whole number.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying interim condensed consolidated financial statements as of June 30, 2025 and for the three and six months ended June 30, 2025 and 2024, and related information contained within the notes to the interim condensed consolidated financial statements, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of June 30, 2025, results of operations, statement of stockholders’ equity for the three and six months ended June 30, 2025 and 2024 and its cash flows for the six months ended June 30, 2025 and 2024. All intercompany balances and transactions have been eliminated. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 19, 2025 (the “2024 Consolidated Financial Statements”). The results for the three and six months ended June 30, 2025 are not necessarily indicative of the results expected for the full fiscal year or any interim period.

For the six months ended June 30, 2025, there have been no material changes to the significant accounting policies as disclosed in Note 2 to the 2024 Consolidated Financial Statements.

Recently Issued Accounting Standards

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes, Accounting Standards Codification (“ASC”) 740: Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 became effective for fiscal years beginning after December 15, 2024. The Company is currently assessing the potential impact of adopting ASU 2023-09 on its financial statements and financial statement disclosures.

The Company reviewed all other recently issued accounting pronouncements and have concluded they are not applicable or not expected to be significant to the accounting for its operations.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment as of June 30, 2025 consisted of the following (in thousands):

Depreciation expense for the three and six months ended June 30, 2025 was $6,000 and $11,000, respectively. Depreciation expense for thethree and six months ended June 30, 2024 was $5,000 and $10,000, respectively.

4. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices.

A summary of the assets that are measured at fair value as of June 30, 2025 and December 31, 2024 is as follows (in thousands):

(1)

Money market funds with maturities of 90 days or less at the date of purchase are included within cash and cash equivalents in the accompanying condensed consolidated balance sheets and are recognized at fair value.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):

6. LEASES

The Company has the following operating leases:

The Company has no finance leases and has elected to apply the short-term lease exception to all leases with durations of one year or less. Rent expense for the three and six months ended June 30, 2025 was $5,000 and $10,000, respectively. Rent expense for thethree and six months ended June 30, 2024 was $47,000 and $143,000, respectively.

Quantitative information regarding the Company’s leases for thethree and six months ended June 30, 2025 and 2024 was as follows:

As of June 30, 2025 and December 31, 2024, the weighted average remaining lease term for operating leases was 4.4 years and 4.9 years, respectively.

As of June 30, 2025 and December 31, 2024, the weighted average discount rate for operating leases was 8% for both periods.

Operating lease liabilities at June 30, 2025 are as follows (in thousands):

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (in thousands):

8. COMMITMENTS AND CONTINGENCIES

During the three and six months ended June 30, 2025, there were no material changes to the Company’s commitments and contingencies as disclosed in Note 9 of the 2024 Consolidated Financial Statements. Further, the Company’s commitments related to lease agreements are disclosed in Note 6.

9. STOCKHOLDERS' EQUITY

Series A Non-Voting Convertible Preferred Stock

In October 2024, the Company entered into an Asset Purchase Agreement (the “Bridge Purchase Agreement”) with Bridge Medicines pursuant to which the Company acquired global rights to Bridge Medicines’ BRM-1420 program, a novel dual ENL-YEATS and FLT3 inhibitor for multiple genetic subsets of AML, and assumed certain of Bridge Medicines’ liabilities associated with the Asset Purchase. As consideration to Bridge Medicines for the Asset Purchase, the Company (a) issued to Bridge Medicines (i)62,594 shares of the Company’s common stock and (ii)160.562 shares of the Company’s Series A non-voting convertible preferred stock, par value $0.00001 per share (the “Preferred Stock”), and (b) assumed specified liabilities.

The terms of the Preferred Stock are as set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series A Non-Voting Convertible Preferred Stock (the “Certificate of Designation”). Each share of Preferred Stock is convertible into 1,000 shares of common stock at the election of the holder of such Preferred Stock. Except as required by law, the Preferred Stock has no voting rights, provided that the Company shall not, without the affirmative vote or written consent of the holders of majority of then outstanding Preferred Stock, among other things, alter or change adversely the power, preferences or rights given to the Preferred Stock, amend the Certificate of Designation, or issue additional shares of Preferred Stock.

On June 18, 2025, the Company’s stockholders approved, for purposes of the Nasdaq Stock Market Rules, the issuance of the Company’s common stock upon conversion of the Preferred Stock (the “Stockholder Approval”). On the third business day following the Company’s receipt of the Stockholder Approval, certain outstanding shares of Preferred Stock were, subject to certain beneficial ownership limitations, automatically converted into 1,000 shares of common stock upon the conversion terms set forth in the Certificate of Designation. As a result, on June 23, 2025,2.201 shares of Preferred Stock were automatically converted into 2,201 shares of the Company's common stock.

Employee Equity Plans

In March 2020, the Company's Board of Directors and stockholders approved the 2020 Stock Option and Grant Plan (“2020 Plan”). Holders of stock options under the 2020 Plan are entitled to exercise the vested portion of the stock option during the term of the grant.

In October 2020, as part of the Company's initial public offering, the Company’s Board of Directors and stockholders approved the 2020 Equity Incentive Plan (“2020 Equity Plan”). Following the adoption of the 2020 Equity Plan, no further options are available to be issued under the 2020 Plan. Stock-based awards granted under the 2020 Equity Plan generally vest over afour-year period and expire ten years from the grant date. Shares available for grant under the 2020 Equity Plan cumulatively increase by 5% of the number of shares of common stock issued and outstanding on January 1 steach year until 2030. At June 30, 2025, the Company had 173,363 shares available for future grant under the 2020 Equity Plan.

The following table sets forth the activity for the Company’s stock options during thesix months ended June 30, 2025:

The weighted-average grant date fair value of all stock-based awards granted for the six months ended June 30, 2025 was $4.24 per share. The intrinsic value at June 30, 2025 and December 31, 2024 was based on the closing price of the Company’s common stock on these dates of $3.41 and $4.65 per share, respectively.

In November 2022, the Company's Board of Directors approved the 2022 Inducement Plan (the “Inducement Plan”), which allows for the grant of equity awards to be made to new employees where the equity award is a material inducement to an employee entering into employment with the Company. The Inducement Plan was adopted by the Company's Board of Directors without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). A total of 10,000 shares of the Company's common stock have been reserved for issuance under the Inducement Plan. As of June 30, 2025, no shares have been issued under the Inducement Plan.

Restricted Stock Units

In January 2024, the Company granted 34,200 restricted stock units (“RSUs”) to its employees under the 2020 Equity Plan. The weighted average grant date fair value of the time-based RSUs was $17.75 for the year ended December 31, 2024. There wereno RSUs granted during the three or six months ended June 30, 2025. The RSUs vest 33% afterone-year from the grant date and 17% everysix-months thereafter, subject to continued service to the Company through the applicable vesting dates. For thethree and six months ended June 30, 2025, the Company recognized a $23,000 and $46,000 expense related to the RSUs, respectively. For the three and six months ended June 30, 2024, the Company recognized a $47,000 and $94,000 expense related to the RSUs, respectively.

The following table sets forth the activity for the Company’s RSUs during thesix months ended June 30, 2025:

Stock-Based Compensation

The grant date fair value of stock-based awards vested during the six months ended June 30, 2025 and 2024 was $417,000 and $2,202,000, respectively. Total unrecognized compensation expense related to unvested options granted under the Company’s stock-based compensation plan was $1,069,000 at June 30, 2025, which is expected to be recognized over a weighted average period of 2.4 years. The Company recorded stock-based compensation expense related to the issuance of stock as follows (in thousands):

The Company uses a Black-Scholes option pricing model to determine fair value of its stock options. The Black-Scholes option pricing model includes various assumptions, including the fair value of common stock, expected life of stock options, the expected volatility based on the historical volatility of a publicly traded set of peer companies, and the expected risk-free interest rate based on the implied yield on a U.S. Treasury security.

The fair values of the options granted were estimated using the following assumptions:

10. INCOME TAXES

As a result of the Company's history of net operating losses ("NOL"), the Company continues to maintain a full valuation allowance against its domestic net deferred tax assets. For the three and six months ended June 30, 2025, the Company recognized an income tax expense of $4,000 and $6,000, respectively. For thethree and six months ended June 30, 2024, the Company recognized an income tax expense of $42,000 in both periods, primarily due to foreign income tax expense.

11. NET LOSS PER SHARE

Basic and diluted net loss per share is calculated as follows (in thousands except share and per share amounts):

The following outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:

12. SEGMENT REPORTING

The Company hasone reportable andone operating segment and manages its business activities primarily in Denmark and North America on a consolidated basis. The Company’s singular focus is on the development of small molecule inhibitors for the treatment of cancer and severe liver diseases. All of the Company’s tangible assets are held in Denmark and the United States.

The accounting policies of the Company are the same as those described in the summary of significant accounting policies.

The Company’s chief operating decision maker (“CODM”) is itschief executive officer. The CODM assesses performance for the Company and decides how to allocate resources based on net loss as reported on the consolidated statements of operations. The annual budgeting process is the primary mechanism used to make these decisions. The financial information also helps in making performance assessments using budgeted versus actual results.

The measure of segment assets is reported on the balance sheet as total consolidated assets.

13. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date on which the unaudited interim condensed consolidated financial statements were issued. The Company has concluded that no subsequent events have occurred that require disclosure to the unaudited interim condensed consolidated financial statements.