EX-99.1

EX-99.1 2 d795649dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months ended June 30, 2024

(Unaudited and Expressed in U.S. Dollars)

EUPRAXIA PHARMACEUTICALS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited and Expressed in U.S. Dollars)

CONTENTS


CONSOLIDATED BALANCE SHEETS			2

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS			3

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)			4-5

CONSOLIDATED STATEMENTS OF CASH FLOWS			6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS			7-24

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and Expressed in U.S. Dollars, except share amounts)


	June 30, 2024			December 31, 2023
ASSETS
Current assets
Cash	$	23,316,105		$	19,341,756
Prepaid expenses		1,053,850			270,710
Amounts receivable (Note 4)		155,235			190,612

Total current assets		24,525,190			19,803,078

Non-current assets
Prepaid expenses		4,602			6,904
Property and equipment, net (Note 5)		347,422			409,587
Right-of-use asset, net (Note 6)		98,104			46,660

Total assets	$	24,975,318		$	20,266,229

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities (Note 7)	$	1,977,773		$	3,921,875
Loans payable (Note 8)		21,209			62,709
Lease liability (Note 9)		71,008			53,316
Payable to Auritec (Note 10)		5,000,000			5,000,000
Convertible debt (Note 11)		4,532,836			10,336,003

Total current liabilities		11,602,826			19,373,903

Non-current liabilities
Lease liability (Note 9)		34,952			—

Total liabilities		11,637,778			19,373,903

Shareholders’ equity
Share capital, without par value; unlimited shares authorized; issued and outstanding: 35,622,553 (December 31, 2023 - 27,282,165 (Note 12(b))		116,318,245			92,913,585
Additional paid-in capital (Notes 12(b), 12(c) and 12(d))		18,984,448			17,510,469
Deficit		(117,551,549	)		(105,501,295	)
Accumulated other comprehensive loss		(2,919,150	)		(2,706,552	)

Equity attributable to the owners of the Company		14,831,994			2,216,207
Non-controlling interest		(1,494,454	)		(1,323,881	)

Total shareholders’ equity		13,337,540			892,326

Total liabilities and shareholders’ equity	$	24,975,318		$	20,266,229

Nature of business and going concern (Note 1)

Commitments (Note 16)

Subsequent event (Note 20)

The accompanying notes are an integral part of these consolidated financial statements.

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited and Expressed in U.S. Dollars, except share amounts)


	Three months ended June 30, 2024			Three months ended June 30, 2023			Six months ended June 30, 2024			Six months ended June 30, 2023
Expenses
General and administrative (Note 13)	$	2,583,126		$	1,922,568		$	5,101,149		$	3,184,404
Research and development (Note 14)		3,971,975			3,787,196			8,147,428			6,061,819

Total expenses		6,555,101			5,709,764			13,248,577			9,246,223
Other income/(expenses)
Interest income		401,226			152,271			637,595			315,304
Interest expense (Note 18)		(281,845	)		(301,770	)		(602,985	)		(593,247	)
Gain (loss) on sale of equipment (Note 5)		11,368			(4,520	)		11,368			(4,658	)
Foreign exchange gain (loss)		(75,041	)		9,942			(218,769	)		32,975
Change in fair value of financial instruments (Note 11)		430,499			(3,652,601	)		1,200,541			(3,966,681	)

Total other income/(expense)		486,207			(3,796,678	)		1,027,750			(4,216,307	)

Net loss before tax expense		(6,068,894	)		(9,506,442	)		(12,220,827	)		(13,462,530	)
Tax recovery		(5,000	)		—			—			—

Net loss for the period	$	(6,063,894	)	$	(9,506,442	)	$	(12,220,827	)	$	(13,462,530	)

Loss attributable to:
Owners of the Company	$	(6,007,216	)	$	(9,377,063	)	$	(12,050,254	)	$	(13,272,455	)
Non-controlling interest		(56,678	)		(129,379	)		(170,573	)		(190,075	)

		(6,063,894	)		(9,506,442	)		(12,220,827	)		(13,462,530	)
Foreign currency translation adjustment		(180,206	)		(15,553	)		(212,598	)		(21,074	)

Comprehensive loss for the period	$	(6,244,100	)	$	(9,521,995	)	$	(12,433,425	)	$	(13,483,604	)

Loss per share – basic and diluted (Owners of the Company	$	(0.17	)	$	(0.43	)	$	(0.37	)	$	(0.61	)

Weighted average shares outstanding – basic and diluted		35,622,553			22,009,026			32,217,597			21,857,497

The accompanying notes are an integral part of these consolidated financial statements.

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited and Expressed in U.S. Dollars, except share amounts)


	Number of shares		Amount		Additional paid-in capital			Deficit			Accumulated other comprehensive income			Non-controlling interest			Total
Balance, December 31, 2022		21,593,145		71,003,225		16,850,165			(77,280,499	)		(2,786,366	)		(578,671	)		7,207,854
Share-based payments		—		—		317,419			—			—						317,419
Redemption of warrants		150,000		263,127		(33,591	)		—			—						229,536
Redemption of options		500		1,132		(438	)		—			—						694
Net loss for the period		—		—		—			(3,895,392	)		—			(60,696	)		(3,956,088	)
Foreign currency translation adjustment		—		—		—			—			(5,521	)					(5,521	)

Balance, March 31, 2023		21,743,645		71,267,484		17,133,555			(81,175,891	)		(2,791,887	)		(639,367	)		3,793,894
Share-based payments		—		—		426,119			—			—			—			426,119
Redemption of warrants		2,050,484		5,057,531		(466,252	)		—			—			—			4,591,279
Redemption of options		1,100		5,204		(2,094	)		—			—			—			3,110
Net loss for the period		—		—		—			(9,377,063	)		—			(129,379	)		(9,506,442	)
Foreign currency translation adjustment		—		—		—						(15,553	)		—			(15,553	)

Balance, June 30, 2023		23,795,229		76,330,219		17,091,328			(90,552,954	)		(2,807,440	)		(768,746	)		(707,593	)

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DIFICIT)

(Unaudited and Expressed in U.S. Dollars, except share amounts)


	Number of shares		Amount		Additional paid-in capital			Deficit			Accumulated other comprehensive income			Non-controlling interest			Total
Balance, December 31, 2023		27,282,165	$	92,913,585	$	17,510,469		$	(105,501,295	)	$	(2,706,552	)	$	(1,323,881	)	$	892,326
Overnight marketed public offering, net of transaction costs (Note 12(b)(vi))		8,260,435		22,853,391		—			—			—			—			22,853,391
Share-based payments (Note 12(c))		—		—		213,130			—			—			—			213,130
Redemption of warrants (Notes 12(b)(iv) and 12(d))		79,943		551,246		(214,062	)		—			—			—			337,184
Redemption of options (Notes 12(b)(v) and 12(c))		10		23		(9	)		—			—			—			14
Net loss for the period		—		—		—			(6,043,038	)		—			(113,895	)		(6,156,933	)
Foreign currency translation adjustment		—		—		—			—			(32,392	)		—			(32,392	)

Balance, March 31, 2024		35,622,553		116,318,245		17,509,528			(111,544,333	)		(2,738,944	)		(1,437,776	)		18,106,720
Share-based payments (Note 12(c))		—		—		1,474,920			—			—			—			1,474,920
Net loss for the period		—		—		—			(6,007,216	)		—			(56,678	)		(6,063,894	)
Foreign currency translation adjustment		—		—		—			—			(180,206	)		—			(180,206	)

Balance, June 30, 2024		35,622,553		116,318,245		18,984,448			(117,551,549	)		(2,919,150	)		(1,494,454	)		13,337,540

The accompanying notes are an integral part of these consolidated financial statements.

EUPRAXIA PHARMACEUTICALS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and Expressed in U.S. Dollars)


	Six months ended June 30, 2024			Six months ended June 30, 2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(12,220,827	)	$	(13,462,530	)
Cash flows from operating activities
Accrued interest on convertible debt, net of interest paid (Note 11)		241,597			310,175
Depreciation (Note 5 and 6)		79,448			75,578
Interest – lease liability		3,337			7,211
Loss (gain) on sale of equipment (Note 5)		(11,368	)		4,658
Share-based payments (Note 12(c))		1,688,050			743,538
Change in fair value of financial instruments (Note 11)		(1,200,541	)		3,966,681
Lease payments (Note 9)		(32,291	)		(32,544	)
Unrealized foreign exchange (gain) loss		214,430			(4,124	)
Changes in operating assets and liabilities
Accounts payable and accrued liabilities		(1,865,706	)		(299,106	)
Prepaid expenses		(759,553	)		(187,159	)
Amounts receivable		30,872			38,342

Cash used in operating activities		(13,832,552	)		(8,839,280	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment (Note 5)		(17,637	)		(14,390	)
Proceeds from sale of equipment		28,510			—

Cash provided by (used in) investing activities		10,873			(14,390	)
CASH FLOWS FROM FINANCING ACTIVITIES
Overnight marketed public offering (net of transaction costs) (Note 12(b)(vi))		22,853,391			—
Redemption of warrants (Note 12(d))		337,184			4,820,815
Redemption of options (Note 12 (c))		14			3,805
Repayment of loans (Note 8)		(41,389	)		(39,151	)
Repayment of convertible debt (Note 11)		(4,494,795	)		—

Cash provided by financing activities		18,654,405			4,785,469

Increase (decrease) in cash and cash equivalents		4,832,726			(4,068,201	)
Foreign exchange effect on cash and cash equivalents		(858,377	)		227,585
Cash, beginning of period		19,341,756			18,263,389

Cash, end of period	$	23,316,105		$	14,422,773

Supplemental disclosure with respect to cash flows (Note 19)

The accompanying notes are an integral part of these consolidated financial statements.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

1.	NATURE OF BUSINESS AND GOING CONCERN

Eupraxia Pharmaceuticals Inc. (the “Company”) was incorporated under the laws of the province of Alberta on May 12, 2011, under the name Plaza Capital Partners Inc. On May 11, 2012, the Company changed its name to Eupraxia Pharmaceuticals Inc. and continued from the province of Alberta to the province of British Columbia.

On October 10, 2012, Eupraxia Holdings, Inc. (“Holdings”) was incorporated under the laws of the State of Delaware, USA. On November 16, 2012, Holdings was registered as an extra-provincial corporation under the laws of the province of British Columbia, Canada. On October 10, 2012, Eupraxia Pharmaceuticals USA, LLC (“Eupraxia USA”) was incorporated under the laws of the State of Delaware. On November 16, 2012, Eupraxia USA was registered as an extra-provincial corporation under the laws of the province of British Columbia. On January 7, 2021, Eupraxia Pharma, Inc. (“Eupraxia Pharma”) was incorporated under the laws of the State of Delaware. On July 4, 2022, Eupraxia Pharmaceuticals Australia Pty Ltd. (“Eupraxia Australia”) was incorporated under the laws of the state of Victoria, Australia. On May 17, 2023, Eupraxia Pharma USA Inc. (“Eupraxia Pharma USA”) was incorporated under the laws of the State of Delaware.

On March 9, 2021, the Company completed its initial public offering on the Toronto Stock Exchange (“TSX”) and began trading under the symbol “EPRX”. On April 5, 2024, the Company began trading on the Nasdaq Capital Market under the symbol “EPRX”.

The Company is a clinical stage biotechnology company leveraging its proprietary Diffusphere^™ technology to optimize drug delivery for applications with significant unmet medical need. The address of the Company’s corporate office and principal place of business is 201- 2067 Cadboro Bay Road, Victoria, British Columbia, Canada.

The unaudited interim consolidated financial statements have been prepared on a going concern basis with the assumption that the Company will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. At June 30, 2024, the Company had cash of $23,316,105. The Company has not yet generated revenue from operations. The Company incurred a net loss of $12,220,827 during the six months ended June 30, 2024, and as of that date, the Company’s accumulated deficit was $117,551,549. As the Company is in the research and development stage, the recoverability of the costs incurred to date is dependent upon the ability of the Company to obtain the necessary funding to complete the research and development of its projects and upon future commercialization or proceeds from the monetization of research activities. The Company will periodically have to raise funds to continue operations and raised gross proceeds of $25,026,073 (CDN$33,867,784) through an overnight marketed public offering of 8,260,435 Common Shares in March 2024. Although it has been successful in doing so in the past, there is no assurance it will be able to do so in the future, especially with the ongoing conflicts in the Ukraine and the Middle East affecting the global capital markets. Recent developments with Silicon Valley Bank (“SVB”), including its closure and placement into receivership, have not impacted the Company’s outlook for cash runway. The Company holds no amounts on deposit with SVB and repaid 50% of the SVB convertible debt facility (see Note 11 – Convertible Debt) which matured on June 21, 2024. The Company has, since June 21, 2024, been requesting payout instructions with respect to the remaining 50% of the SVB convertible debt facility from the court-appointed liquidator of SVB and SVB Financial Group. The Company is active in its pursuit of additional funding through potential partnering and other strategic activities as well as grants to fund future research and development activities, and additional equity financing (see Note 20 – Subsequent Event).

The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional funding. There is a risk that in the future, additional financing will not be available on a timely basis or on terms acceptable to the Company. These events and conditions may cast substantial doubt about the Company’s ability to continue as a going concern. The unaudited interim consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

2.	BASIS OF PRESENTATION

These unaudited interim consolidated financial statements are presented in U.S. dollars and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) which the Company transitioned to in 2023. These unaudited interim consolidated financial statements include the accounts of the Company and the accounts of its subsidiaries. All significant intercompany transactions and balances have been eliminated upon consolidation.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these consolidated financial statements does not include all the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2023 included in the Company’s 2023 40-F filed with SEC and on SEDAR+ on April 1, 2024.

These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. The results of operations for the six months ended June 30, 2024, and 2023 are not necessarily indicative of results that can be expected for a full year. These unaudited interim consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company included in the Company’s 2023 Form 40-F for the year ended December 31, 2023 filed with SEC and on SEDAR+ on April 1, 2024.

Comparative Figures

Comparative figures for the three and six months ended June 30, 2023, which were previously prepared in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (“IASB”), have been adjusted as required to be compliant with the Company’s accounting policies under U.S. GAAP.

Change in Reporting Currency to the U.S. Dollar

Effective December 31, 2023, the Company changed its reporting currency to the U.S. dollar (“USD”) from the Canadian dollar (“CDN”). As such, all prior amounts originally reported in CDN are now reported in USD. The change in reporting currency was made to enhance comparability of the Company’s results with other publicly traded companies in the life sciences industry. The Canadian dollar continues to be the functional currency of the Company.

In accordance with ASC 830, the unaudited interim consolidated financial statements of the Company are translated into U.S. dollars using the current rate method. Assets and liabilities are translated at the rate of exchange prevailing at the consolidated balance sheet date. Shareholders’ equity is translated at the applicable historical rate. Revenue, expense and cash flow items are translated at the exchange rate in effect on the transaction dates. Translation gains and losses are reported as a separate component of shareholders’ equity titled Accumulated Other Comprehensive Income.

The financial information for all prior periods is presented in U.S. dollars as if the U.S. dollar had been used as the reporting currency during those periods.

3.	UPCOMING ACCOUNTING STANDARDS AND INTERPRETATIONS

The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company or that there was no material impact or no material impact is expected in the condensed consolidated financial statements as a result of future adoption.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

4.	AMOUNTS RECEIVABLE


	June 30, 2024		December 31, 2023
Trade receivables	$	13,570	$	—
GST/HST recoverable		108,087		85,879
Taxes receivable		33,578		—
Other refundable tax credits ⁽¹⁾		—		104,733

Total	$	155,235	$	190,612

(1)	Other refundable tax credits are due to tax incentives for R&D costs incurred by Eupraxia Australia which were refunded during the six months ended June 30, 2024.

5.	PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


	Computers			Office furniture and equipment			Leasehold Improvements			Lab Equipment			Total
Cost
As at December 31, 2022		70,578			66,399			125,744			473,553			736,274
Additions		18,534			—			—			54,843			73,377
Disposals		(5,488	)		—			—			(16,124	)		(21,612	)
Foreign currency adjustments		2,001			1,597			3,023			12,992			19,613

As at December 31, 2023		85,625			67,996			128,767			525,264			807,652
Additions		10,848			—			—			6,789			17,637
Disposals		(2,498	)		—			—			(25,718	)		(28,216	)
Foreign currency adjustments		(2,887	)		(2,290	)		(4,337	)		(17,800	)		(27,314	)

As at June 30, 2024		91,088			65,706			124,430			488,535			769,759

Accumulated Depreciation
As at December 31, 2022		42,505			44,026			99,301			106,978			292,810
Depreciation		17,612			4,492			13,849			76,930			112,883
Disposals		(5,162	)		—			—			(11,604	)		(16,766	)
Foreign currency adjustments		1,226			1,149			2,666			4,097			9,138

As at December 31, 2023		56,181			49,667			115,816			176,401			398,065
Depreciation		7,424			1,784			5,799			34,095			49,102
Disposals		(1,553	)		—			—			(9,521	)		(11,074	)
Foreign currency adjustments		(1,939	)		(1,686	)		(3,981	)		(6,150	)		(13,756	)

As at June 30, 2024		60,113			49,765			117,634			194,825			422,337

Net Book Value
As at December 31, 2023	$	29,444		$	18,329		$	12,951		$	348,863		$	409,587

As at June 30, 2024	$	30,975		$	15,941		$	6,796		$	293,710		$	347,422

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

5.	PROPERTY AND EQUIPMENT (continued)

During the three months ended June 30, 2024 and 2023, depreciation expense of $24,162 and $27,422, respectively, was recognized with $2,561 included in general and administrative and $21,601 included in research and development ($9,030 and $18,392 for general and administrative, and research and development in 2023, respectively). During the six months ended June 30, 2024 and 2023, depreciation expense of $49,102 and $54,226, respectively, was recognized with $11,438 included in general and administrative and $37,664 included in research and development ($12,053 and $42,173 for general and administrative, and research and development in 2023, respectively).

6.	RIGHT-OF-USE ASSET

On May 13, 2024, the Company extended the lease of the office space until November 30, 2025. The lease extension increased the right-of-use asset by $78,580. The following table presents details of movement in the carrying value of the right-of-use asset:


	June 30, 2024			December 31, 2023
Balance, beginning	$	46,660		$	87,286
Depreciation		(30,346	)		(42,644	)
Lease extension		78,580			—
Foreign Exchange		3,210			2,018

Balance, ending	$	98,104		$	46,660

During the three months ended June 30, 2024 and 2023, depreciation expense of $17,868 and $10,700 respectively, was recognized with $6,289 included in general and administrative and $11,579 included in research and development in 2024 ($4,038 and $6,662 for general and administrative, and research and development in 2023, respectively). During the six months ended June 30, 2024 and 2023, depreciation expense of $30,346 and $21,352 respectively, was recognized with $10,730 included in general and administrative and $19,616 included in research and development in 2024 ($13,470 and $7,882 for general and administrative, and research and development in 2023, respectively).

7.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


	June 30, 2024		December 31, 2023
Research and development	$	1,268,548	$	1,968,263
General and administrative		678,406		1,040,204
Wages and payroll remittances		30,819		18,357
Employee bonus payable⁽¹⁾		—		858,628
Taxes payable		—		36,423

Total	$	1,977,773	$	3,921,875

(1)	Bonus relates to corporate bonuses for the year ended December 31, 2023.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

8.	LOANS PAYABLE

On September 10, 2021, the Company entered into a Master Loan and Security Agreement (“Loan Agreement”) whereby the Company borrowed $235,000 to purchase production and test equipment (see Note 5 – Property and Equipment).

The Loan Agreement has a term of 36 months commencing September 13, 2021. The Loan Agreement accrues interest at 5.84% per annum with monthly payments (principal and interest) being made on the 1^st of each month, beginning October 1, 2021. As part of the agreement, the Company granted the lender first priority interest on the equipment it purchased.

Below is a breakdown of loan balance as at June 30, 2024 and December 31, 2023:


	June 30, 2024			December 31, 2023
Balance, beginning	$	62,709		$	142,127
Loan repayment		(41,389	)		(79,441	)
Foreign exchange adjustment		(111	)		23

Balance, ending	$	21,209		$	62,709

Current portion	$	21,209		$	62,709

During the quarter, Management identified that loan payments should be presented within cash flows from operating activities as opposed to cash flows from financing activities in the consolidated statements of cash flows. As such, Management changed the presentation for the current and comparative periods to conform to the requirements under U.S. GAAP.

9.	LEASE LIABILITY

The Company entered into an operating lease agreement for its Victoria, BC facility (of approximately 4,900 square feet of office space). As previously highlighted, the Company extended the term of the lease for 12 months. The lease expires on November 30, 2025.

The cost components of the operating lease were as follows for the years ended June 30, 2024 and 2023:


	Three months ended June 30, 2024			Three months ended June 30, 2024			Six months ended June 30, 2024			Six months ended June 30, 2024
Lease Cost
Operating lease expense	$	16,023		$	16,327		$	32,291		$	32,544
Variable lease expense		17,803			17,234			35,866			34,345
Lease term and Discount Rate
Weighted average remaining lease term (years)		1.42			0.92			1.42			0.92
Weighted average discount rate		9.02	%		14.00	%		9.02	%		14.00	%

Variable lease costs are payments that vary because of changes in facts or circumstances and include common area maintenance and property taxes related to the premises. Variable lease costs are excluded from the calculation of minimum lease payments.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Unaudited and Expressed in U.S. Dollars, except share amounts)

9.	LEASE LIABILITY

The Company’s future minimum lease payments as of June 30, 2024 are as follows:


Total undiscounted future minimum lease payments	$	112,127
Less: imputed interest		(6,167	)

Present value of lease liabilities at June 30, 2024		105,960
Current Portion		71,008

Non-current portion	$	34,952

During the three months ended June 30, 2024, the Company subleased approximately 616 square feet office space with amounts totaling $6,115 for the three months ended June 30, 2024 ($6,125 – three months ended June 30, 2023) being recorded as a reduction to general and administrative expenses. During the six months ended June 30, 2024, the subleased amounts totaling $12,214 for the six months ended June 30, 2024 ($12,211 – six months ended June 30, 2023) being recorded as a reduction to general and administrative expenses.

During the quarter, Management identified that lease payments should be presented within cash flows from operating activities as opposed to cash flows from financing activities in the consolidated statements of cash flows. As such, Management changed the presentation for the current and comparative periods to conform to the requirements under U.S. GAAP.

10.

AURITEC LICENSE AGREEMENT

Eupraxia Pharmaceuticals USA LLC (“Eupraxia LLC”) entered into an amended and restated license agreement with Auritec Pharmaceuticals Inc. (“Auritec”) on October 9, 2018 (as further amended, the “Amended and Restated License Agreement”). Under the terms of the Amended and Restated License Agreement, Auritec has granted Eupraxia LLC an exclusive license (including the right to sublicense to its affiliates and third parties) under the licensed patents held by Auritec and for all the technical information and know-how relating to the technology claimed in the licensed patents held by Auritec with respect to the use of Auritec’s “Plexis Platform” for the delivery of fluticasone in all medical fields (except for otolaryngology and the prevention, treatment and control of all diseases, disorders and conditions of the eye and its adnexa (collectively, the “Excluded Fields”)), to develop, make, have made, manufacture, use, commercialize, sell, sub-license, offer for sale, import, and have imported products for the delivery of fluticasone drug products using the Plexis Platform in all medical fields except the Excluded Fields (“Licensed Products”).

Pursuant to the terms of the Amended and Restated License Agreement, Eupraxia USA LLC has paid $5,000,000 to Auritec (the “Upfront Fee”). In addition, Eupraxia LLC has agreed to pay Auritec up to $30,000,000 upon achievement of certain regulatory and commercial milestones related to products licensed under the Amended and Restated License Agreement (“Licensed Products”) as well as a royalty of 4% of net sales of Licensed Products by Eupraxia LLC or its affiliates, subject to certain reductions.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

10.

AURITEC LICENSE AGREEMENT (continued)

The following table summarizes the milestone payment schedule. As of June 30, 2024, the only milestone that has been accrued and provided for in the financial statements is $5,000,000 related to the successful completion of the Phase 2b clinical study report. The Company anticipates this milestone payment will be paid in the third quarter of 2024.


Milestone Event	Milestone Payment
Successful Completion of a Phase 2b Study	$	5,000,000
First OA Regulatory Approval		5,000,000
Second OA Regulatory Approval		5,000,000
Non-OA Indication Regulatory Approval		10,000,000
First calendar year in which aggregate Net Sales by Eupraxia USA, its affiliates and sublicenses exceed $500,000,000		5,000,000

Maximum amount payable	$	30,000,000

Eupraxia LLC also agreed to pay to Auritec 20% of sublicensing royalties or other consideration based on net sales of Licensed Products. Eupraxia LLC further agreed to pay Auritec a percentage of Non-Royalty Monetization Revenue (as defined in the Amended and Restated License Agreement), which includes payments received for a sale of Eupraxia LLC or sale or sublicense of a Licensed Product, which percentage ranges from 10% to 30% depending on the development stage of the most-advanced Licensed Product, up to a maximum of $100,000,000. The following table summarizes the Non-Royalty Monetization Revenue percentage schedule:


Date of Execution	Percentage of Non-Royalty Monetization Revenue
Prior to Successful Completion of a Phase 2b Study		30	%
After Successful Completion of a Phase 2b Study but prior to Successful Completion of a Phase 3 Study		20	%
After Successful Completion of a Phase 3 Study but prior to Regulatory Approval of a Product in the Eupraxia Field from FDA in the United States		15	%
After Regulatory Approval of a Product in the Eupraxia Field from FDA in the United States		10	%

11.

CONVERTIBLE DEBT

On June 21, 2021, the Company entered into a contingent convertible debt agreement (the “Debt Agreement”) with SVB and concurrently drew down, in full, the CDN$10,000,000 principal amount under the Debt Agreement.

The Debt Agreement had a term of 36 months (or 48 months at SVB’s election). As SVB did not make such an election, the Debt Agreement matured on June 21, 2024.

The Debt Agreement accrued interest at the greater of 2.45% and the Canadian prime rate, requiring monthly interest payments. An additional payment in kind accrued interest at a rate of 7% per annum, which was partially settled at maturity. During the six months ended June 30, 2024, the Canadian prime rate ranged from 6.95% - 7.20%. During the six months ended June 30, 2023, the Canadian prime rate ranged from 6.45% - 6.95%.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

11.

CONVERTIBLE DEBT (continued)

Subject to the terms and conditions of the Debt Agreement, SVB had the option to elect to convert the principal amount of the convertible debt and the accrued and unpaid interest thereon into common shares at a conversion price equal to CDN$5.68 per common share. The conversion price of the accrued and unpaid interest would be subject to the minimum pricing requirements of the TSX, to the extent applicable, at the time of conversion.

The Company granted SVB a security interest in all of its assets, excluding its patents and other intellectual property, and the testing and product equipment by way of the loan agreement it entered into on September 10, 2021 (Note 8 – Loans Payable) as security for its obligations under the Debt Agreement.

Recent developments with Silicon Valley Bank (“SVB”), including its closure and placement into receivership, have not impacted the Company’s outlook for cash runway. The Company holds no amounts on deposit with SVB and repaid 50% of the SVB convertible debt facility which matured on June 21, 2024. The Company has, since June 21, 2024, been requesting payout instructions with respect to the remaining 50% of the SVB convertible debt facility from the court-appointed liquidator of SVB and SVB Financial Group.

The Company intends to fulfill its obligations when such a decision is reached. The convertible debt balance is comprised of the following:


Balance - December 31, 2022	$	8,741,996
Accrued interest		1,162,773
Interest paid		(591,170	)
Change in fair value		836,595
Foreign exchange		185,809

Balance - December 31, 2023	$	10,336,003
Accrued interest		601,637
Interest paid		(360,040	)
Change in fair value		(1,200,541	)
Loan repayment		(4,494,795	)
Foreign exchange		(349,428	)

Balance - June 30, 2024	$	4,532,836

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

12.

SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY

Authorized

•

An unlimited number of Common shares, with no par value, with one vote per share.

•

An unlimited number of Preferred shares, with no par value (none have been issued to date).

Issued

Capital transactions which took place during the year ended December 31, 2023, are as follows:

During the year ended December 31, 2023, 2,385,484 common shares were issued on the exercise of warrants for gross proceeds of $5,241,811. The weighted average share price during the period in which these warrants were exercised was CDN$7.15. On exercise, $733,177 was transferred from additional paid-in capital to share capital.

ii)

During the year ended December 31, 2023, 20,600 common shares were issued on the exercise of options for gross proceeds of $30,059. The weighted average share price during the period in which these options were exercised was CDN$2.00. On exercise, $18,776 was transferred from additional paid-in capital to share capital.

iii)

On August 18, 2023, the Company closed a non-brokered private placement (the “Private Placement”). Pursuant to the Private Placement, the Company issued 3,183,875 common shares at a price of CDN$7.00 per Common share for aggregate gross proceeds of $16,445,635. The Company incurred cash costs of issuing shares of $559,098. In addition, the Company issued 99,061 common shares as finder’s fees which were valued at $511,681.

Capital transactions which took place during the six months ended June 30, 2024.

iv)

During the six months ended June 30, 2024 79,943 common shares were issued on the exercise of warrants for gross proceeds of $337,184. The weighted average share price during the period in which these warrants were exercised was CDN$5.50. On exercise, $214,062 was transferred from additional paid-in capital to share capital.

During the six months ended June 30, 2024, 10 common shares were issued on the exercise of options for gross proceeds of $14. The weighted average share price during the period in which these options were exercised was CDN$5.15. On exercise, $9 was transferred from additional paid-in capital to share capital.

vi)

On March 15, 2024, the Company closed an overnight marketed public offering (the “Offering”). Pursuant to the Offering, the Company issued 8,260,435 common shares at a price of CDN$4.10 for aggregate gross proceeds of $25,026,073, which includes the issuance of 943,435 Shares upon exercise of the over-allotment option.

As consideration for the services rendered by the Underwriter in connection with the Offering, the Company paid the Underwriters a cash commission of $1,501,564 which is equal to 6% of the gross proceeds raised under the Offering. An additional $309,652 in legal and agents’ expenses were also paid to the Underwriters. The Company incurred an additional $361,466 in share issuance costs associated with the Offering.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

12.

SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (continued)

Options

Under the Amended Stock Option Plan (the “Amended Plan”), approved by the Board of Directors on October 27, 2021, and ratified by Shareholders on December 3, 2021, the Board of Directors may grant stock options to directors, officers, employees and consultants of the Company up to an aggregate of 18.5% of the Company’s then issued and outstanding common shares.

Options granted under the Amended Plan have lives of up to ten years from the date of grant. The vesting schedule of all granted options is determined at the discretion of the Board. Unless otherwise determined by the Board, in its sole discretion, all grants of options will vest over a three-year period, with the first twenty-five percent (25%) of the Options vesting on the date of grant, and the remaining options vesting over the following thirty-six-month period in three equal instalments on an annual basis.

The following table summarizes the Company’s option transactions:


	Number of options			Weighted average exercise price (CDN$)
Outstanding, December 31, 2022		3,306,450		$	6.18
Exercised		(20,600	)		2.00
Cancelled		(24,800	)		3.73
Granted		257,200			6.91

Outstanding, December 31, 2023		3,518,250		$	6.27
Exercised		(10	)		1.90
Cancelled		(40,750	)		6.58
Granted		1,506,880			3.96

Outstanding, June 30, 2024		4,984,370		$	5.57

Share-based payments for the three months ended June 30, 2024, was $1,474,919 (2023 - $426,119) (See Note 13 – General & Administrative Expenses and Note 14 – Research & Development Expenses for breakdown by function).

Share-based payments for the six months ended June 30, 2024, was $1,688,050 (2023 - $743,538) (See Note 13 – General & Administrative Expenses and Note 14 – Research & Development Expenses for breakdown by function).

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

12.

SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (continued)

Options (continued)

As of June 30, 2024, the unrecognized stock-based compensation expense related to the non-vested stock options was $2,196,546, which is expected to be recognized over a weighted-average period of 2.59 years.


Grant Date	Options Outstanding		Options Exercisable		Exercise Price (CDN$)		Expiry Date		Remaining Contractual Life (years)
Sep 27, 2015		181,250		181,250	$	8.00		Mar 31, 2025		0.75
Nov 2, 2015		95,000		95,000	$	8.00		Nov 2, 2025		1.34
Mar 5, 2018		446,000		446,000	$	8.00		Mar 5, 2028		3.68
Mar 9, 2021		1,063,750		1,063,750	$	8.00		Mar 9, 2031		6.69
May 3, 2021		257,000		257,000	$	8.00		May 3, 2031		6.84
Dec 9, 2021		60,000		57,500	$	2.02		Dec 9, 2031		7.45
Mar 31, 2022		382,990		284,865	$	1.90		Mar 31, 2032		7.76
Dec 9, 2022		734,300		407,983	$	3.85		Dec 9, 2032		8.45
May 18, 2023		180,000		90,000	$	6.84		May 18, 2033		8.89
May 30, 2023		17,200		8,600	$	6.75		May 30, 2033		8.92
Sep 27, 2023		60,000		15,000	$	7.16		Sep 27, 2033		9.25
May 13, 2024		1,456,880		576,720	$	3.96		May 13, 2034		9.87
May 28, 2024		50,000		25,000	$	3.82		May 28, 2034		9.92

		4,984,370		3,508,668	$	5.57				7.54


Options granted during the six months ended	June 30, 2024		June 30, 2023
Expected dividend yield		0%		0%
Expected forfeiture rate		0%		0%
Weighted average annual volatility		79.11%		80.11%
Weighted average risk-free interest rate		3.74%		3.33%
Weighted average expected option life		5.56 years		5.75 years
Weighted average share price (CDN$)		$3.96		$6.83
Weighted average exercise price (CDN$)		$3.96		$6.83
Weighted average fair value of options granted (CDN$)		$2.70		$4.73

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

12.

SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (continued)

Warrants

The following table summarizes the Company’s warrant transactions:


	Number of warrants			Weighted average exercise price (CDN$)
Outstanding December 31, 2022		11,504,814		$	4.95
Exercised		(2,385,484	)		2.90

Outstanding December 31, 2023		9,119,330		$	5.49
Exercised		(79,943	)		5.62
Expired		(231,110	)		5.88

Outstanding June 30, 2024		8,808,277		$	5.48

As at June 30, 2024, the following warrants were outstanding:


Expiry date	Exercise price (CDN$)		Remaining contractual life (years)		Warrants outstanding and exercisable
120 days after holder to be a Director/ Officer or consultant	$	0.7572		N/A		243,421
120 days after former spouse ceases to be a Director/ Officer or consultant		0.7572		N/A		137,500
120 days after holder ceases to be a Director/ Officer or consultant⁽¹⁾		0.4984		N/A		315,500
March 9, 2026		11.20		2.19		2,826,024
April 20, 2026		3.00		2.30		5,196,550
April 20, 2026		2.05		2.30		50,054
April 29, 2026		11.20		2.33		39,228

	$	5.48				8,808,277

(1)	Represents unit purchase to acquire 315,500 units consisting of one Common Share and one additional warrant at an exercise price of $0.75CDN. These underlying warrants expire two years from the date of exercise of the primary warrant.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

12.

SHARE CAPITAL AND OTHER COMPONENTS OF EQUITY (continued)

Class B Non-Voting shares

On January 31, 2021, the Company entered into a contribution agreement with the Chief Scientific Officer of the Company, and certain of the Company’s subsidiaries (the “Contribution Agreement”). Pursuant to the Contribution Agreement, the Company acquired AMDM Holdings Inc., a corporation wholly-owned by the Chief Scientific Officer, which held 5% of the equity interest in the Company’s subsidiary, Eupraxia USA. In exchange, the Company issued to the Chief Scientific Officer 225 non-voting Class B shares (the “Class B Shares”) in Eupraxia Pharma Inc. representing 5% of the outstanding securities of Eupraxia Pharma. The Company holds the remaining 95% of such securities, which consists of 4,275 voting Class A shares.

Each Class B Share is exchangeable into common shares of the Company based on an exchange rate of 2,500 common shares for each Class B Share, subject to adjustments upon the occurrence of certain events, for a total of 562,500 common shares. The Class B Shares are exchangeable by the Chief Scientific Officer at her election, provided that the Company may force the exchange of the Class B Shares into common shares of the Company at any time on or after January 31, 2031, or on or after January 31, 2026, if the Company is listed on a stock exchange and is a reporting issuer in Canada at such time. The Company may also force the exchange of the Class B Shares into common shares if there is a change of control transaction involving the Company, a change in law which makes the exchange necessary or desirable or if there are a de minimis number of Class B Shares outstanding. If the Company is listed on a stock exchange at the time of the applicable exchange, the Company may elect to pay the Chief Scientific Officer cash in lieu of issuing common shares, with such cash amount to be determined based on the then current market price of the common shares of the Company.

13.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses are comprised of the following:


	Three months ended June 30, 2024		Three months ended June 30, 2023		Six months ended June 30, 2024		Six months ended June 30, 2023
Office expenses	$	94,670	$	92,418	$	205,979	$	189,417
Insurance		284,604		109,209		386,037		173,763
Travel		98,269		54,466		220,691		140,864
Professional fees		255,354		921,634		1,357,152		1,210,465
Public company costs		390,642		122,347		795,200		175,440
Salaries and benefits		546,270		458,508		1,068,146		910,278
Share based payments (Note 12(c))		913,317		163,986		1,067,944		384,177

Total expenses during the period	$	2,583,126	$	1,922,568	$	5,101,149	$	3,184,404

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

14.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses are comprised of the following:


	Three months ended June 30, 2024		Three months ended June 30, 2023			Six months ended June 30, 2024		Six months ended June 30, 2023
Preclinical	$	704,653	$	218,878		$	966,289	$	649,531
Clinical		334,399		1,925,205			1,367,359		2,433,241
Manufacturing & analytical		1,204,094		679,375			2,950,838		1,099,873
Regulatory		55,592		99,713			90,576		193,313

Direct research and development		2,298,738		2,923,171			5,375,062		4,375,958
Pipeline development		—		2,732			—		69,561
Other research and development		201,227		126,719			374,173		307,024
Salaries and benefits		910,407		521,681			1,778,087		1,044,249
Share based payments (Note 12(c))		561,603		262,132			620,106		359,361
Government grants (Note 15)		—		(49,239	)		—		(94,334	)

Total expenses during the period	$	3,971,975	$	3,787,196		$	8,147,428	$	6,061,819

15.

GOVERNMENT GRANTS AND ASSISTANCE

National Research Council – Industrial Research Assistance Program (“NRC-IRAP”)

On October 1, 2021, the Company entered into an agreement with NRC-IRAP for funding support of specified research and development activities during a project phase, commencing on September 1, 2021, and ending on December 15, 2023. Under the agreement, NRC-IRAP would reimburse up to 80% of supported salary costs, and 50% of supported contractor fees to a maximum of $553,185. The Company claimed $49,239 pertaining to the agreement during the three months ended June 30, 2023 ($94,237 for the six months ended June 30, 2023). There were no amounts claimed during the three and six months ended June 30, 2024 as the project ended December 31, 2023.

The following table summarizes the government grants and assistance the Company received or accrued during the three and six months ended June 30, 2024 and 2023:


	Three months ended June 30, 2024		Three months ended June 30, 2023		Six months ended June 30, 2024		Six months ended June 30, 2024
NRC-IRAP	$	—	$	49,239	$	—	$	94,334

Total	$	—	$	49,239	$	—	$	94,334

Government assistance of $nil (2023 - $94,334) relating to research and development activities has been offset against research and development expense.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

16.

COMMITMENTS

The Company may be required to make milestone, royalty, and other research and development funding payments under research and development collaboration and other agreements with third parties. These payments are contingent upon the achievement of specific development, regulatory and/or commercial milestones. Other than the $5,000,000 milestone accrued for in December 2023 (see Note 10 – Auritec License Agreement), the Company has not accrued any payments as at June 30, 2024 due to the uncertainty over whether these milestones will be achieved.

Eupraxia has entered into a number of service contracts with its vendors. Some of those contracts have cancellation clauses which state Eupraxia would pay a cancellation fee of between 15% and 100% of the next service milestone if it terminates the contract. As of June 30, 2024, the Company did cancel a contract with one of its vendors which triggered a cancellation fee of $87,598 which was expensed during the three months ended June 30, 2024. There were no other cancelled contracts during the three and six months ended June 30, 2024.

17.

FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities, payable to Auritec, loans payable and convertible debt.

There were no changes to the Company’s risk exposures or management of risks during the year ended June 30, 2024. The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company believes it has no significant credit risk, as its cash and cash equivalents and short-term investments, being its primary exposure to credit risk, is with a large Canadian bank. The Company’s maximum exposure to credit risk is the carrying value of these financial assets.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial assets. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at June 30, 2024, the Company had cash of $23,316,105 (2023 - $19,341,756) in addition to total liabilities of $11,637,778 (2023 - $19,373,903). Management is currently working on certain strategic alternatives including, but not limited to raising additional capital and strategic alternatives to its existing convertible debt facility. There is no assurance, however, that any or all of these alternatives will materialize or that additional funding will be available, if and when needed.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

17.

FINANCIAL INSTRUMENTS (continued)

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate cash flow risk; and to the extent that the prevailing market interest rates differ from the interest rate on the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk. At June 30, 2024, the Company maintains an equipment loan of $235,000 of which a principal balance of $21,209 remains. The remaining balance of the convertible debt facility (CDN$5,000,000) matured on June 21, 2024 (see Note 11 – Convertible Debt for more information), at which time the Company was prepared to settle the obligation. As such, it is no longer impacted by changes in interest rates.

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk due to its frequency of transactions in U.S. dollars. The Company does not use derivatives to hedge against this risk, however, it has purchased U.S. dollars to cover the majority of the costs of the Company’s Phase 2 clinical trial.

At June 30, 2024, the Company held cash of $1,967,901 (2023 – $933,816), had accounts payable of $653,563 (2023 – $1,292,128), a payable owing to Auritec of $5,000,000 (2023 - $5,000,000), amounts receivable of $47,148 (2023 – nil) and a loan payable of $21,209 (2023 – $62,709) denominated in U.S. dollars which were translated to Canadian dollars at 1.3687 (2023 – 1. 3226). The impact of a 10% change in the exchange rates would have an impact of approximately $365,972 (2023 – $542,102) on profit or loss. The Company also has accounts payable of £175,858 (2023 - £676) denominated in Great Britain pound sterling which was translated to Canadian dollars at 1.7301 (2023 – 1.6837). The impact of a 10% change in the exchange rate would have an impact of $22,229 (2023 - $86) on profit and loss. The Company also has cash in accounts payable in Australian dollars and Euros. The impact of a 10% change in the exchanges of these currencies would have an immaterial effect on future cash flows.

Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk and foreign currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market. The Company is not exposed to significant price risk with respect to commodity or equity prices.

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

17.

FINANCIAL INSTRUMENTS (continued)

Fair Value Measurement

The Company categorizes its financial instruments measured at fair value into one of three different levels depending on the observation of inputs used in the measurement.

Level 1: Fair value is based on unadjusted quoted prices for identical assets or liabilities in active markets

Level 2: Fair value is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3: Fair value is based on valuation techniques that require one or more significant unobservable inputs

The Company’s financial instruments consist of cash, short-term investments, accounts payable and accrued liabilities, loans payable and convertible debt. With the exception of convertible debt, the carrying value of the Company’s financial instruments approximate their fair values due to their short-term maturities.

The following table summarizes information regarding the carrying values of the Company’s financial instruments measured at amortized cost:


Financial assets/liabilities	June 30, 2024		December 31, 2023
Cash	$	23,316,105	$	19,341,756
Amounts receivable		155,235		190,612
Accounts payable and accrued liabilities		1,977,773		3,921,875
Payable to Auritec		5,000,000		5,000,000
Loans payable		21,209		62,709

For the convertible debt, the key inputs that affect the ongoing valuation are the discount price, the share price and the share price volatility. See Note 11 – Convertible Debt to see the movement in the SVB debt facility.

18.

INTEREST EXPENSE

Interest expense is comprised of the following:


	Three months ended June 30, 2024		Three months ended June 30, 2023		Six months ended June 30, 2024		Six months ended June 30, 2023
Interest on SVB debt facility (Note 11)	$	281,319	$	300,054	$	601,637	$	588,833
Other interest and accretion		526		1,716		1,348		4,414

Total	$	281,845	$	301,770	$	602,985	$	593,247

EUPRAXIA PHARMACEUTICALS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2024 and 2023

(Expressed in U.S. Dollars, except share amounts)

19.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

The Company paid interest of $199,191 during the three months ended June 30, 2024 ($146,399 paid during the three months ended June 30, 2023). The Company paid interest of $361,386 during the six months ended June 30, 2024 ($282,564 paid during the six months ended June 30, 2023).

The Company received interest of $401,226 during the three months ended June 30, 2024 ($152,271 received during the three months ended June 30, 2023). The Company received interest of $637,595 during the six months ended June 30, 2024 ($364,501 received during the six months ended June 30, 2023).

The Company did not have non-cash transactions for six months ended June 30, 2024 and June 30, 2023.

20.

SUBSEQUENT EVENT

On August 1, 2024, the Company entered into a new C$12 million convertible debt facility (the “Convertible Debt Facility”). Under the Convertible Debt Facility, Yabema Capital Limited and other current Eupraxia shareholders (together, the “Lenders”) will make available for drawdown an aggregate amount of C$12 million for a period of 120 days following entry into the agreement. The decision to draw on the facility within 120 days of closing is at the discretion of Eupraxia and is subject to the full and final release of the SVB convertible debt (see Note 11 – Convertible Debt), originally agreed to on June 21, 2021.

The aggregate unpaid principal amount and any accrued and unpaid interest thereon will be convertible at the discretion of the lenders into Eupraxia common shares at a conversion price equal to C$4.84375 per common share.