10-Q 1 epix-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number: 001-37410

ESSA Pharma Inc.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

98-1250703

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

Suite 720, 999 West Broadway

Vancouver, BC V5Z 1K5

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (778) 331-0962

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

EPIX

Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes No

The number of outstanding Common Shares of the registrant, no par value per share, as of May 13, 2024 was 44,362,991.

ESSA PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended March 31, 2024

Table of Contents

PART I. FINANCIAL INFORMATION

7

Item 1.

Financial Statements and Supplementary Data

7

Condensed Consolidated Interim Balance Sheets as of March 31, 2024 and September 30, 2023

8

Condensed Consolidated Interim Statements of Operations and Comprehensive Loss for the three and six months ended March 31, 2024 and 2023

9

Condensed Consolidated Interim Statements of Cash Flows for the six months ended March 31, 2024 and 2023

10

Condensed Consolidated Interim Statement of Changes in Shareholders’ Equity for the three and six months ended March 31, 2024 and 2023

11

Notes to the Condensed Consolidated Interim Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

45

Item 4.

Controls and Procedures

45

PART II. OTHER INFORMATION

46

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits, Financial Statement Schedules

47

SIGNATURES

48

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of Canadian securities laws, or collectively, forward-looking statements. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to”, “believe,” “anticipate,” “plan,” “expect,” “intend,” “estimate,” “project,” “may,” “might,” “will,” “should,” “would,” “could,” “hope,” “can,” the negatives thereof, variations thereon and similar expressions, or by discussions of strategy. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Examples of such forward looking statements include, but are not limited to statements related to:

our ability to advance our product candidate and potential future product candidates through, and successfully complete, clinical trials;
our ability to recruit sufficient numbers of patients for future clinical trials, and the benefits expected therefrom;
our ability to establish and maintain relationships with collaborators with acceptable development, regulatory and commercialization expertise and the benefits to be derived from such collaborative efforts;
our ability to obtain funding for operations, including research funding, and the timing and potential sources of such funding;
the initiation, timing, cost, location, progress and success of, strategy and plans with respect to our research and development programs (including research programs and related milestones with regards to next-generation drug candidates and compounds), preclinical studies and clinical trials;
the therapeutic benefits, properties, effectiveness, pharmacokinetic profile and safety of our product candidate and potential future product candidates, if any, including the expected benefits, properties, effectiveness, pharmacokinetic profile and safety of our next-generation Aniten compounds;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
developments relating to our competitors and our industry, including the success of competing therapies that are or may become available;
our ability to achieve profitability;
the grant (“CPRIT Grant”) under the Cancer Prevention and Research Institute of Texas (“CPRIT”) and payments thereunder, including any residual obligations;
sales of our Common Shares, no par value (the “Common Shares”) under the Open Market Sale Agreement between the Company and Jefferies LLC, effective November 3, 2023 (the “ATM Sales Agreement”);
our intended use of proceeds from past and future offerings of our securities;
the implementation of our business model and strategic plans, including strategic plans with respect to patent applications and strategic collaborations and partnerships;
our ability to identify, develop and commercialize product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our expectations regarding federal, state, provincial and foreign regulatory requirements, including our plans with respect to anticipated regulatory filings;
whether we will receive, and the timing and costs of obtaining, regulatory approvals in the United States, Canada and other jurisdictions;
the accuracy of our estimates of the size and characteristics of the markets that may be addressed by our product candidate and potential future product candidates, if any;
our ability to maintain operations, development programs, preclinical studies, clinical trials and raise capital as a result of global macroeconomic factors including inflation, supply chain issues and any current or future impact related to widespread health concerns, pandemics, or epidemics, and other outbreaks of illness;

3

the rate and degree of market acceptance and clinical utility of our potential future product candidates, if any;
the timing of, and our ability and our collaborators’ ability, if any, to obtain and maintain regulatory approvals for our product candidate and potential future product candidates, if any;
our expectations regarding market risk, including inflation, interest rate changes and foreign currency fluctuations;
our ability to engage and retain the employees required to grow our business;
the compensation that is expected to be paid to our employees;
our future financial performance and projected expenditures; and
estimates of our financial condition, expenses, future revenue, capital requirements and our need for additional financing and potential sources of capital and funding.

Such statements reflect our current views with respect to future events, are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that are inherently subject to significant medical, scientific, business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements, including those described under “Risk Factors” in our Annual Report on Form 10-K. All forward-looking statements included in this Quarterly Report on Form 10-Q, are based upon our current expectations and various assumptions. Certain assumptions made in preparing the forward-looking statements include, but are not limited to:

our ability to conduct clinical studies involving our product candidate and to identify any future product candidates;
our ability to obtain regulatory and other approvals to commence clinical trials involving any future product candidates;
our ability to obtain positive results from research and development activities, including clinical trials;
the availability of sufficient financing on reasonable terms;
our ability to obtain required regulatory approvals;
our ability to protect patents and proprietary rights;
our ability to successfully out-license or sell future products, if any, and in-license and develop new products;
the absence of material adverse changes in our industry or the global economy;
our ability to attract and retain key personnel;
our continued compliance with third-party license terms and non-infringement of third-party intellectual property rights;
our ability to maintain good business relationships with our strategic partners; and
our ability to understand and predict market competition.

We believe there is a reasonable basis for our current expectations, views and assumptions, but they are inherently uncertain. We may not realize our expectations and our views and assumptions may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. In evaluating forward-looking statements, investors should specifically consider the following uncertainties and factors, among others (including those set forth under the heading “Risk Factors” in our Annual Report on Form 10-K), that could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements.

RISK FACTOR SUMMARY

Below is a summary of material factors that make an investment in our Common Shares speculative or risky. Importantly, this summary does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Cautionary Note Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K. The below summary is qualified in its entirety by those more complete discussions of such risks and uncertainties. You should consider carefully the risks and uncertainties described under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K as part of your evaluation of an investment in our Common Shares. Important factors that could cause such differences include, among other things, the following:

4

risks related to clinical trial development and our ability to conduct the clinical trial of our product candidate and the predictive value of our current or planned clinical trials;
risks related to our future success being dependent primarily on identification through preclinical studies, clinical studies, regulatory approval for commercialization of a single product candidate;
risks related to our license agreement with third parties;
uncertainty related to our ability to obtain required regulatory approvals for our proposed products;
risks related to the Company’s ability to conduct a clinical trial or submit a future NDA/NDS or IND/CTA (each, as defined herein);
risks related to our ability to successfully commercialize future product candidates;
risks related to the possibility that our product candidate and potential future product candidates, if any, may have undesirable side effects when used alone or in combination with other drugs;
risks related to our ability to enroll subjects in clinical trials;
risks that the FDA may not accept data from trials conducted in locations outside the United States;
risks related to our ongoing obligations and continued regulatory review;
risks related to potential administrative or judicial sanctions;
the risk of increased costs associated with prolonged, delayed or terminated clinical trials;
risks related to clinical trials being conducted by third parties under collaboration and clinical supply agreements, including combination studies, using the Company’s product candidate, studies which the Company may not control, and ensuing reputational risk related to clinical trial results;
the risk that third parties may not carry out their contractual duties or terminate the relationship;
risks related to our lack of experience manufacturing product candidates on a large clinical or commercial scale and our lack of manufacturing facility;
risks inherent in foreign operations, including related to foreign sourced raw materials, manufacturing or clinical trials;
risks related to disruptions in domestic and foreign supply chains that the Company relies on for the production and shipment of raw materials and clinical trial materials;
risks related to our failure to obtain regulatory approval in international jurisdictions;
risks related to recently enacted and future legislation in the United States and internationally that may increase the difficulty and cost for us to obtain marketing approval of, and commercialize, our product candidate and potential future products, if any, and affect the prices we may obtain;
risks related to new legislation, new regulatory requirements, and the continuing efforts of governmental and third-party payors to contain or reduce the costs of healthcare;
uncertainty as to our ability to raise additional funding;
risks related to our ability to raise additional capital on favorable terms and the impact of dilution from incremental financing;
risks of a deemed default on any residual obligations of the agreement providing for the CPRIT Grant and having to reimburse all of the CPRIT Grant, if such deemed default is not waived by CPRIT;
risks related to our incurrence of significant losses in every quarter since inception and our anticipation that it will continue to incur significant losses in the future;
risks related to our limited operating history;
risks related to our reliance on proprietary technology;
risks related to our ability to protect our intellectual property rights throughout the world;
risks related to claims by third parties asserting that we, or our employees, contractors or consultants have misappropriated their intellectual property, or claiming ownership of what we regard as our intellectual property;
risks related to our ability to comply with governmental patent agency requirements in order to maintain patent protection;
risks related to computer system failures or security breaches and increasing cyber threats;
risks related to business disruptions that could seriously harm our future revenues and financial condition and increase our costs and expenses;
risks related to our ability to attract and maintain highly qualified personnel;

5

risks relating to the possibility that third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain our future revenues;
risks related to potential conflicts of interest between us and our directors and officers;
risks related to competition from other biotechnology and pharmaceutical companies;
risks related to movements in foreign currency exchange rates, interest rates and rate of inflation;
risks related to our ability to convince public payors and hospitals to include our product candidate and potential future products, if any, on their approved formulary lists;
risks related to our ability to establish an effective sales force and marketing infrastructure, or enter into acceptable third-party sales and marketing or licensing arrangements;
risks related to our ability to manage growth;
risks related to our ability to achieve or maintain expected levels of market acceptance for our products;
risks related to our ability to realize benefits from acquired businesses or products or form strategic alliances in the future;
risks related to collaborations with third parties;
risks that employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation;
risks related to product liability lawsuits;
risks related to compulsory licensing and/or generic competition;
risks related to the costs of and management time devoted to operating as a public company;
risks related to being a smaller reporting company;
risks related to the possibility that laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain product candidates outside of the United States and Canada and require us to develop and implement costly compliance programs;
risks related to laws that govern fraud and abuse and patients’ rights;
risks related to our ability to comply with environmental, health and safety laws and regulations;
risks related to us being a “passive foreign investment company”;
risks related to United States investors’ ability to effect service of process or enforcement of actions against us;
risks related to market price and trading volume volatility;
risks related to our dividend policy;
risks associated with future sales of our securities;
risks related to our ability to maintain an active trading market for the Company's Common Shares;
risks related to widespread health concerns, pandemics, or epidemics and other outbreaks of illness;
risks related to our ability to implement and maintain effective internal controls;
risks related to provisions in our charter documents and Canadian law affecting corporate governance; and
risks related to analyst coverage.

If one or more of these risks or uncertainties or a risk that is not currently known to us, materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from those expressed or implied by forward-looking statements. The forward-looking statements represent our expectations, plans, estimates and views as of the date of this document. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events, except as required by law. Investors are cautioned that we cannot guarantee future results, events, levels of activity, performance or achievements and that forward-looking statements are inherently uncertain. Accordingly, investors are cautioned not to put undue reliance on forward-looking statements. We advise you that these cautionary remarks expressly qualify in their entirely all forward-looking statements attributable to us or persons acting on our behalf.

We express all amounts in this Quarterly Report on Form 10-Q in U.S. dollars, except where otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” are to Canadian dollars. Except as otherwise indicated, references in this Quarterly Report on Form 10-Q to “ESSA,” “the Company,” “we,” “us” and “our” refer to ESSA Pharma Inc. and its subsidiary.

6

PART I. FINANCIAL INFORMATION

Item 1.     Financial Statements and Supplementary Data

Graphic

ESSA Pharma Inc.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2024

7

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(Unaudited)

(Expressed in United States dollars)

AS OF

March 31, 

September 30, 

    

2024

    

2023

ASSETS

 

  

 

  

Current

 

  

 

  

Cash and cash equivalents

$

91,683,074

 

$

33,701,912

Short-term investments (Note 4)

44,205,592

114,374,489

Receivables

 

215,168

 

135,057

Prepaids (Note 5)

 

1,194,038

 

585,420

 

137,297,872

 

148,796,878

Deposits

257,363

 

257,245

Operating lease right-of-use asset (Note 7)

 

340,940

 

68,008

Total assets

$

137,896,175

 

$

149,122,131

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current

 

  

 

  

Accounts payable and accrued liabilities (Note 6)

$

4,073,654

 

$

3,414,743

Current portion of operating lease liability (Note 7)

 

100,650

 

80,328

 

4,174,304

 

3,495,071

Operating lease liability (Note 7)

 

253,012

 

Total liabilities

 

4,427,316

 

3,495,071

Shareholders’ equity

 

  

 

  

Authorized

 

  

 

  

Unlimited common shares, without par value

 

  

 

  

Unlimited preferred shares, without par value

Common shares 44,362,991 issued and outstanding (September 30, 2023 – 44,100,838) (Note 8)

 

279,679,513

 

278,161,537

Additional paid-in capital (Note 8)

 

50,305,585

 

49,047,280

Accumulated other comprehensive loss

 

(2,101,023)

 

(2,120,398)

Accumulated deficit

 

(194,415,216)

 

(179,461,359)

 

133,468,859

 

145,627,060

Total liabilities and shareholders’ equity

$

137,896,175

 

$

149,122,131

Nature of operations (Note 1)

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

8

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE AND SIX MONTHS ENDED MARCH 31,

For the three months ended

For the six months ended

March 31, 

March 31, 

    

2024

    

2023

    

2024

    

2023

OPERATING EXPENSES

 

  

 

  

 

  

 

  

Research and development

$

6,177,987

 

$

4,480,863

$

11,554,751

 

$

9,825,113

Financing costs

 

 

1,944

 

 

4,294

General and administration

 

4,315,502

 

3,730,692

 

6,533,370

 

6,249,811

Total operating expenses

 

(10,493,489)

 

(8,213,499)

 

(18,088,121)

 

(16,079,218)

Foreign exchange

 

14,142

 

(762)

 

5,663

 

10,771

Investment and other income

 

1,489,812

 

1,155,622

 

3,128,601

 

2,267,926

Loss for the period before taxes

 

(8,989,535)

 

(7,058,639)

 

(14,953,857)

 

(13,800,521)

Income tax expense

 

 

(1,600)

 

 

(1,600)

Net loss for the period

(8,989,535)

(7,060,239)

(14,953,857)

(13,802,121)

OTHER COMPREHENSIVE INCOME

Unrealized gain (loss) on short-term investments (Note 4)

(749)

 

(59,115)

 

19,375

 

(29,688)

Loss and comprehensive loss for the period

$

(8,990,284)

 

$

(7,119,354)

$

(14,934,482)

 

$

(13,831,809)

Basic and diluted loss per common share

$

(0.20)

 

$

(0.16)

$

(0.34)

 

$

(0.31)

Weighted average number of common shares outstanding
– basic and diluted

 

44,237,124

 

44,092,374

 

44,183,013

 

44,082,725

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

9

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Unaudited)

(Expressed in United States dollars)

FOR THE SIX MONTHS ENDED MARCH 31,

    

2024

    

2023

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

Net loss for the period

$

(14,953,857)

 

$

(13,802,121)

Items not affecting cash and cash equivalents:

 

  

 

  

Amortization of right-of-use asset

 

45,212

 

60,894

Accretion of premiums/discounts on short-term investments, net

(421,248)

 

(279,405)

Accretion of lease liability

 

15,867

 

4,294

Accrued investment income

(132,068)

39,060

Unrealized foreign exchange

 

(4,826)

 

111

Share-based payments

 

1,936,019

 

3,000,699

Changes in non-cash working capital items:

 

  

 

  

Receivables

 

(80,111)

 

(2,572)

Prepaids

 

(608,736)

 

749,143

Accounts payable and accrued liabilities

 

659,459

 

(157,759)

Operating lease liabilities

(60,677)

Net cash used in operating activities

 

(13,604,966)

 

(10,387,656)

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of short-term investments

(22,291,096)

(178,310,466)

Proceeds from short-term investments sold

93,032,441

175,939,115

Net cash provided by (used in) investing activities

 

70,741,345

 

(2,371,351)

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Options exercised

806,909

Shares purchased through employee share purchase plan

33,353

50,291

Lease payments

 

 

(69,278)

Net cash provided by (used in) financing activities

 

840,262

 

(18,987)

Effect of foreign exchange on cash and cash equivalents

 

4,521

 

2,196

Change in cash and cash equivalents for the period

 

57,981,162

 

(12,775,798)

Cash and cash equivalents, beginning of period

 

33,701,912

 

57,076,475

Cash and cash equivalents, end of period

$

91,683,074

 

$

44,300,677

Supplemental disclosure of non-cash investing and finance items:

Leased assets obtained in exchange for operating lease liabilities

$

318,144

$

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

10

ESSA PHARMA INC.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Expressed in United States dollars)

FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023

Accumulated

Additional

other

Number

Common

paid-in

comprehensive

 

    

of shares

    

shares

    

capital

    

loss

    

Deficit

    

Total

Balance, September 30, 2022

 

44,073,076

$

278,089,136

$

44,043,503

$

(2,135,145)

$

(152,879,016)

 

$

167,118,478

Shares issued through employee share purchase plan

19,298

52,392

(2,101)

 

50,291

Share-based payments

 

1,563,608

 

1,563,608

Loss and comprehensive loss for the period

 

29,427

(6,741,882)

 

(6,712,455)

Balance, December 31, 2022

 

44,092,374

$

278,141,528

$

45,605,010

$

(2,105,718)

$

(159,620,898)

 

$

162,019,922

Share-based payments

 

1,437,091

 

1,437,091

Loss and comprehensive loss for the period

 

(59,115)

(7,060,239)

 

(7,119,354)

Balance, March 31, 2023

 

44,092,374

$

278,141,528

$

47,042,101

$

(2,164,833)

$

(166,681,137)

 

$

156,337,659

Accumulated

Additional

other

Number

Common

paid-in

comprehensive

 

of shares

    

shares

    

capital

    

loss

    

Deficit

    

Total

Balance, September 30, 2023

 

44,100,838

$

278,161,537

$

49,047,280

$

(2,120,398)

$

(179,461,359)

 

$

145,627,060

Options exercised

48,333

298,742

(135,436)

 

163,306

Shares issued through employee share purchase plan

14,476

51,168

(17,815)

 

33,353

Share-based payments

 

803,418

 

803,418

Loss and comprehensive loss for the period

 

20,124

(5,964,322)

 

(5,944,198)

Balance, December 31, 2023

 

44,163,647

$

278,511,447

$

49,697,447

$

(2,100,274)

$

(185,425,681)

 

$

140,682,939

Options exercised

199,344

1,168,066

(524,463)

 

643,603

Share-based payments

 

1,132,601

 

1,132,601

Loss and comprehensive loss for the period

 

(749)

(8,989,535)

 

(8,990,284)

Balance, March 31, 2024

 

44,362,991

$

279,679,513

$

50,305,585

$

(2,101,023)

$

(194,415,216)

 

$

133,468,859

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

11

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE SIX MONTHS ENDED MARCH 31, 2024

1.     NATURE OF OPERATIONS

Nature of Operations

The Company was incorporated under the laws of the Province of British Columbia on January 6, 2009. The Company’s head office address is Suite 720 – 999 West Broadway, Vancouver, BC, V5Z 1K5. The registered and records office address is the Suite 3500, The Stack, 1133 Melville Street, Vancouver, BC, V6E 4E5. The Company is listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “EPIX”.

The Company is focused on the development of small molecule drugs for the treatment of prostate cancer. The Company has acquired a license to certain patents (“NTD”) which were the joint property of the British Columbia Cancer Agency and the University of British Columbia. As of March 31, 2024, no products are in commercial production or use.

2.     BASIS OF PRESENTATION

Basis of Presentation

These accompanying unaudited condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with United States’ Generally Accepted Accounting Principles (“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 condensed consolidated interim financial statements do not include all of 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 September 30, 2023 and included in the Company’s 2023 Annual Report on Form 10-K filed with the SEC and with the securities commissions in British Columbia, Alberta and Ontario on December 12, 2023.

These unaudited condensed consolidated interim 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 March 31, 2024 and 2023 are not necessarily indicative of results that can be expected for a full year. These unaudited condensed consolidated interim 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 Annual Report on Form 10-K for the year ended September 30, 2023, with the exception of any policies described in Note 3. Certain prior period amounts in the unaudited condensed consolidated interim statements of cash flows have been reclassified to conform to the current period presentation.

These accompanying unaudited condensed consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiaries. Inter-company transactions, balances and unrealized gains or losses on transactions are eliminated upon consolidation.

The accompanying condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial assets measured at fair value.

All amounts expressed in these accompanying condensed consolidated interim financial statements and the accompanying notes are expressed in United States dollars, except per share data and where otherwise indicated. References to “$” are to United States dollars and references to “C$” are to Canadian dollars.

12

Use of Estimates

The preparation of the accompanying condensed consolidated interim financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, expenses, contingent assets and contingent liabilities as of the end of, or during, the reporting period. Actual results could significantly differ from those estimates. Significant areas requiring management to make estimates include the valuation of equity instruments issued for services. Further details of the nature of these assumptions and conditions may be found in the relevant notes to these condensed consolidated interim financial statements.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both. Estimates and assumptions are reviewed quarterly.

3.     RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements not yet adopted

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated interim financial statements.

Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are  not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

4.     SHORT-TERM INVESTMENTS

Short-term investments consist of guaranteed investment certificates (“GICs”) held at financial institutions purchased in accordance with the Company’s treasury policy. These GICs and term deposits bear interest at 5.15%-5.40% per annum and have maturities of up to 12 months.

Short-term investments also consist of U.S. treasury securities. The Company has classified these investments as available-for-sale, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all investment securities as current assets. Those investments with maturity dates of three months or less at the date of purchase are presented as cash equivalents in the accompanying balance sheets. Short-term investments are carried at fair value with the unrealized gains and losses included in accumulated other comprehensive loss as a component of shareholders’ equity until realized. Any premium or discount arising at purchase is amortized or accreted to investment income as an adjustment to yield using the straight-line method over the life of the instrument. The Company records an allowance for credit losses when unrealized losses are due to credit-related factors. Realized gains and losses are calculated using the specific identification method and recorded as investment income.

As of March 31, 2024

Amortized

Unrealized

Accrued

Estimated

    

Cost

    

Gains

    

Losses

    

Investment Income

    

Fair Value

U.S. Treasury securities

$

22,447,728

 

$

 

$

(24,033)

 

$

29,242

 

$

22,452,937

GICs and Term deposits

21,141,314

611,341

21,752,655

Balance, end of period

$

43,589,042

 

$

 

$

(24,033)

 

$

640,583

 

$

44,205,592

13

As of March 31, 2024, short-term investments have an aggregate fair market value of $44.2 million (September 30, 2023 – $114.4 million) were in an aggregate gross unrealized loss position of $24,033 (September 30, 2023 - $43,248). The Company considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. These particular investments have been in an unrealized loss position for less than 12 months and it is not more likely than not that the Company will be required to sell any of its securities prior to maturity. Accordingly, no allowance for credit losses has been recorded as of March 31, 2024 and no realized gains or losses on sales of short-term investments have been recorded through March 31, 2024.

5.     PREPAIDS

March 31, 

September 30, 

    

2024

    

2023

Prepaid insurance

$

682,018

 

$

24,839

Prepaid CMC and clinical expenses and deposits

 

249,742

 

181,835

Other deposits and prepaid expenses

 

262,278

 

378,746

Balance, end of period

$

1,194,038

 

$

585,420

6.     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

March 31, 

September 30, 

    

2024

    

2023

Accounts payable

$

2,041,006

 

$

2,028,265

Accrued expenses

 

1,296,320

 

845,730

Employee compensation and vacation accruals

 

736,328

 

540,748

Balance, end of period

$

4,073,654

 

$

3,414,743

7.     OPERATING LEASE

Operating lease right-of-use assets

    

  

Balance, September 30, 2023

$

68,008

Addition

 

318,144

Amortization

(45,212)

Balance, March 31, 2024

$

340,940

Operating lease liabilities

 

  

Balance, September 30, 2023

$

80,328

Addition

318,144

Cost of operating lease

(44,810)

Balance, March 31, 2024

$

353,662

Operating lease liabilities with expected life of less than one year

 

$

100,650

Operating lease liabilities with expected life greater than one year

 

$

253,012

The Company recognizes a right-of-use asset for the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments over the lease term. The present value of the lease payments is calculated using an incremental borrowing rate as the Company’s leases do not provide an implicit

14

interest rate. The incremental borrowing rate applied to the lease liability was 10.25%. At March 31, 2024, the Company’s remaining lease term for the South San Francisco office was 39 months.

As at March 31, 2024, the maturity of the Company’s operating lease liability was as follows:

    

Operating lease

Within 1 year

$

106,022

1 to 2 years

 

131,912

2 to 3 years

135,869

3 to 4 years

46,193

419,996

Less:

Imputed interest

(66,334)

Operating lease liability

$

353,662

8.     SHAREHOLDERS’ EQUITY

Authorized

Unlimited common shares, without par value.

Unlimited preferred shares, without par value.

Omnibus Incentive Plan

On February 25, 2021, the Company adopted an omnibus incentive plan (“Omnibus Plan”), as subsequently amended, consistent with the policies and rules of Nasdaq. Pursuant to the Omnibus Plan, the Company may issue stock options, share appreciation rights, restricted shares, restricted share units and other share-based awards. As of March 31, 2024, the Company has not issued any instruments other than stock options under the Omnibus Plan.

Prior to the adoption of the Omnibus Plan, the Company issued equity compensation pursuant to the Company’s amended and restated stock option plan (the “Legacy Option Plan”), Amended and Restated Restricted Share Unit Plan (the “RSU Plan”) and Employee Stock Purchase Plan. Since the adoption of the Omnibus Plan, no further grants have been made under the Legacy Option Plan or RSU Plan, though existing grants under the Legacy Option Plan will continue in effect in accordance with their terms.

As of March 31, 2024, the Omnibus Plan has a maximum of 10,810,907 common shares which may be reserved for issuance.

Employee Share Purchase Plan

The Company has adopted an Employee Share Purchase Plan (“ESPP”) under which qualifying employees may be granted purchase rights (“Purchase Rights”) to the Company’s common shares at not less of 85% of the market price at the lesser of the date the Purchase Right is granted or exercisable. The Company currently holds offerings consisting of six month periods commencing on January 1 and July 1 of each calendar year, with a single purchase date at the end of the purchase period on June 30 and December 31 of each calendar year. As of March 31, 2024, the ESPP has a maximum of 194,360 (September 30, 2023 - 208,836) common shares reserved for issuance.

Eligible employees are able to contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions. Purchase of shares under the ESPP are limited for each employee at $25,000 worth of the Company’s common shares (determined using the lesser of (i) the market price of a common share on the first day of an applicable purchase period and (ii) the market price of a common share on the purchase date) for each calendar year in

15

which a purchase right is outstanding.

During the six months ended March 31, 2024, the Company issued 14,476 shares (2023 –19,298) upon the exercise of Purchase Rights. The Company recognizes compensation expense for purchase rights on a straight-line basis over the service period.

For the three months ended

For the six months ended

March 31, 

March 31, 

    

2024

    

2023

    

2024

    

2023

Research and development expense

$

3,238

 

$

754

$

5,649

 

$

1,352

General and administrative

 

1,750

 

41

 

8,246

 

494

$

4,988

$

795

$

13,895

$

1,846

The Company measures the purchase rights based on their estimated grant date fair value using the Black-Scholes option pricing model and the estimated number of shares that can be purchased. The following weighted average assumptions were used for the valuation of purchase rights:

2024

    

2023

    

Risk-free interest rate

 

5.09

%  

3.19

%  

Expected life of share purchase rights

 

6 months

 

6 months

 

Expected annualized volatility

 

72.26

%  

103.56

%  

Dividend

 

 

 

Stock Options

Pursuant to the Legacy Option Plan and Omnibus Plan, options were previously or may be granted, respectively, with expiry terms of up to 10 years, and vesting criteria and periods are approved by the Board at its discretion. The options issued under the Legacy Option Plan and Omnibus Plan are accounted for as equity-settled share-based payments.

Stock option transactions are summarized as follows:

    

    

Weighted

Number

Average

of Options

Exercise Price*

 

Balance, September 30, 2023

 

8,112,774

$

4.97

Options granted

 

1,728,750

 

8.81

Options exercised

 

(247,677)

 

(3.26)

Options expired/forfeited

 

(23,750)

 

(2.85)

Balance outstanding, March 31, 2024

 

9,570,097

$

5.71

Balance exercisable, March 31, 2024

 

6,711,397

$

4.96

*Options exercisable in Canadian dollars as of March 31, 2024 are translated at current rates to reflect the current weighted average exercise price in U.S. dollars for all outstanding options.

16

At March 31, 2024, options were outstanding enabling holders to acquire common shares as follows:

    

Weighted average remaining

Exercise price

Number of options

contractual life (years)

$

2.39

50,000

8.46

$

2.70

20,000

9.09

$

2.91

136,989

8.82

$

2.97

15,000

9.15

$

3.05

50,000

9.19

$

3.23

3,457,900

5.52

$

3.59

26,667

5.55

$

3.60

901,667

8.25

$

3.75

20,000

8.68

$

3.81

185,816

4.86

$

3.91

64,167

9.57

$

4.00

539,518

3.72

$

4.67

168,227

5.59

$

5.99

190,000

8.06

$

7.00

1,458,646

6.70

$

8.47

120,000

7.54

$

9.04

1,650,000

9.99

$

9.76

50,000

7.88

$

13.96

190,000

6.79

$

29.63

100,000

7.08

$

31.62

50,000

7.17

C$

4.90

110,500

3.20

C$

5.06

15,000

4.86

9,570,097

 

6.85

Share-based Compensation

During the six months ended March 31, 2024, the Company granted a total of 1,728,750 (2023 - 195,000) stock options with a weighted average fair value of $8.80 per option (2023 - $2.76).

The Company recognized share-based payments expense for options granted and vesting, net of recoveries on cancellations of unvested options, during the period ended March 31, 2024 and 2023 with allocations to its functional expense as follows:

For the three months ended

For the six months ended

March 31, 

March 31, 

2024

    

2023

2024

    

2023

Research and development expense

$

455,903

 

$

749,405

$

979,733

 

$

1,539,999

General and administrative

 

671,710

 

686,891

 

942,391

 

1,458,857

$

1,127,613

 

$

1,436,296

$

1,922,124

 

$

2,998,856

17

The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted:

2024

    

2023

Risk-free interest rate

 

4.20

%  

3.97

%

Expected life of options

 

10.00

years

10.00

years

Expected annualized volatility