GALECTIN THERAPEUTICS INC
For the period ended Dec 31, 2023. Filed Mar 29, 2024.
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FY2023 · Filed Mar 29, 2024
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Reports of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Galectin Therapeutics Inc. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Galectin Therapeutics Inc. and Subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, changes in redeemable convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe our audits provide a reasonable basis for our opinions.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:
(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Description of Matter | Going Concern | |
|---|---|---|
| As described further in Note 1 to the consolidated financial statements, the Company has incurred losses each year from inception through December 31, 2023, and expects to incur additional losses in the foreseeable future. Currently, management’s forecasts and related assumptions illustrate the Company’s ability to sufficiently fund operations and satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. Management made judgments to conclude that it is probable the Company’s plans will be effectively implemented and will provide the necessary cash flows to fund the Company’s obligations as they become due. The judgments with the highest degree of impact and subjectivity in reaching this conclusion included management’s estimates of research and development clinical trial costs and other general and administrative costs. As a result, a high degree of auditor judgment and increased audit effort was required in performing audit procedures to evaluate the reasonableness of management’s estimates. | ||
| How We Addressed the Matter in Our Audit | Our audit procedures included the following: | |
| • | Obtained an understanding of the internal controls and processes in place over the Company’s preparation of forecasted information and considerations of the Company’s obligations. | |
| • | Tested the reasonableness of the forecasted research and development expenses, operating expenses, and uses and sources of cash used in management’s assessment of whether the Company has sufficient liquidity to fund operations for at least one year from the consolidated financial statement issuance date. This testing included inquiries with management, comparison of prior period forecasts to actual results, consideration of positive and negative evidence impacting management’s forecasts, the Company’s financing arrangements in place as of the report date, consideration of the Company’s relationships with its financing partners, performance of a sensitivity analysis of accelerated uses of cash, and creation of an independent estimate of expected future cash flows. | |
| Description of Matter | Valuation of Derivative Liabilities and Warrant Modification | |
| As discussed in Note 5 to the consolidated financial statements, during the year ended December 31, 2021, the Company and a related party entered into three debt financing arrangements for a total of $30 million loaned to the Company. These arrangements include various conversion and other features, including a contingent interest component that has been bifurcated and recognized as a derivative liability. At December 31, 2023, the Company’s derivative liabilities related to the related party convertible notes payable totaled $1,004 thousand. Additionally, as discussed in Note 8, the Company modified common stock purchase warrants held by a related party on September 22, 2023, which led to the recognition of a deemed dividend for the change in fair value of the warrants of $3,319 thousand. As more fully described in Note 6 and Note 8 to the consolidated financial statements, the Company utilized a Monte Carlo Geometric Brownian Stock Path Model and Black-Scholes option pricing model in measuring the fair value of these instruments, which requires the use of estimates and assumptions. Auditing management’s valuations of the derivative liabilities and warrant modification was challenging due to the complexity of the valuation models and the inputs that are highly sensitive to changes such as the common stock market price, volatility, risk free rates, and yields. | ||
| How We Addressed the Matter in Our Audit | Our audit procedures included, among others, the following: | |
| • | Obtained an understanding of the internal controls and processes in place over the Company’s process used in determining the valuation of the derivative liabilities and warrant modification. | |
| • | Evaluated the Company’s use of the models used and tested the significant assumptions used in the models, as described above. | |
| • | Evaluated the completeness and accuracy of underlying data used in supporting the assumptions and estimates. | |
| • | In addition, we involved valuation specialists to assist in assessing the significant assumptions and methodologies used by the Company. | |
Index
| Description of Matter | Accrued and Prepaid Clinical Trial Expenses | |
|---|---|---|
| The Company’s accrued expenses total approximately $9.2 million at December 31, 2023, which included the estimated obligation for clinical trial expenses incurred as of December 31, 2023, but not paid as of that date in the amount of approximately $8.0 million. In addition, the Company’s total prepaid expenses and other current assets totaled $2.1 million, which included amounts that were paid in advance of services incurred pursuant to clinical trials in the amount of approximately $1.1 million. | ||
| Our audit procedures included, among others, the following: | ||
| • | Obtained an understanding of the internal controls and processes in place over the Company’s process used in determining the completeness and existence of accrued and prepaid clinical trial expenses. | |
| • | Tested the accuracy and completeness of the underlying data used in determining the accrued and prepaid clinical trial expenses and evaluating the assumptions and estimates used by management to adjust the actual information received. We corroborated the schedules of the underlying data used in the accrual calculation with the Company’s third party contract research organization who oversees the clinical trials. To evaluate the completeness of the accrual, we also tested subsequent invoices received to assess the impact to the accrual. | |
We have served as the Company’s auditor since 2015.
/s/Cherry Bekaert LLP
Atlanta, Georgia
March 29, 2024
Index
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