EX-99.2 3 ex992.htm Q1 FINANCIAL STATEMENTS

Exhibit 99.2

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

ESSA PHARMA INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (Unaudited) (Expressed in United States dollars) AS AT
	December 31, 2019			September 30, 2019

ASSETS

Current
Cash	$	45,934,420		$	53,322,723
Receivables (Note 18)		350,097			360,800
Prepaids (Note 5)		471,810			615,485

		46,756,327			54,299,008

Deposits		274,085			274,085
Right-of-use assets (Note 6)		137,905			—
Intangible assets (Note 7)		196,157			200,731

Total assets	$	47,364,474		$	54,773,824

LIABILITIES AND SHAREHOLDERS' EQUITY

Current
Accounts payable and accrued liabilities	$	1,095,272		$	1,565,789
Current lease liability (Note 8)		113,890			—
Current portion of long-term debt (Note 9)		—			3,708,955
Income tax payable		20,000			300,000

		1,229,162			5,574,744

Lease liability (Note 8)		26,613			—
Derivative liabilities (Note 10)		79,176			18,179

Total liabilities		1,334,951			5,592,923

Shareholders' equity
Share capital (Note 11)		76,208,556			76,212,154
Obligation to issue shares		227,864			—
Reserves (Note 12)		31,102,744			29,856,177
Accumulated other comprehensive loss		(2,076,479	)		(2,076,479	)
Deficit		(59,433,162	)		(54,810,951	)

		46,029,523			49,180,901

Total liabilities and shareholders’ equity	$	47,364,474		$	54,773,824
Nature and continuance of operations (Note 1)
Commitments (Note 18)
Subsequent events (Note 20)


On behalf of the Board on February 13, 2020

“David R. Parkinson”	Director	“Franklin Berger”	Director

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

ESSA PHARMA INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited) (Expressed in United States dollars) FOR THE THREE MONTHS ENDED DECEMBER 31


	2019			2018

OPERATING EXPENSES
Research and development (Note 19)	$	2,587,148		$	1,286,323
Financing costs		215,501			177,434
General and administration (Note 19)		2,143,740			1,247,108

Total operating expenses		(4,946,389	)		(2,710,865	)

Foreign exchange		6,210			(2,800	)
Interest income		100,965			—
(Loss) gain on derivative liability (Note 10)		(60,997	)		12,550

Net loss for the period before taxes		(4,900,211	)		(2,701,115	)

Income tax recovery (expense)		278,000			(9,652	)

Net loss and comprehensive loss for the period	$	(4,622,211	)	$	(2,710,767	)

Basic and diluted loss per common share	$	(0.22	)	$	(0.43	)

Weighted average number of common shares outstanding - basic and diluted		20,762,374			6,305,283

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

ESSA PHARMA INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited) (Expressed in United States dollars) FOR THE THREE MONTHS ENDED DECEMBER 31

	2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period	$	(4,622,211	)	$	(2,710,767	)
Items not affecting cash:
Amortization		32,155			4,574
Loss (gain) on derivative liability		60,997			(12,550	)
Finance expense		215,501			177,434
Unrealized foreign exchange gain		(11,510	)		(722	)
Share-based payments (Note 12)		1,253,621			336,217
Income tax recovery		(278,000	)		—

Changes in non-cash working capital items:
Receivables		10,136			53,021
Prepaid expenses		143,675			92,963
Accounts payable and accrued liabilities		(162,976	)		213,849
Income tax payable		(2,000	)		(4,722	)

Net cash used in operating activities		(3,360,612	)		(1,850,703	)

CASH FLOWS FROM FINANCING ACTIVITIES
Lease payments		(29,405	)		—
Funds received for warrant exercise		227,864			—
Share issuance costs		(314,603	)		—
Loan principal repaid (Note 9)		(3,199,799	)		(683,203	)
Interest and financing costs paid (Note 9)		(720,235	)		(119,485	)

Net cash used in financing activities		(4,036,178	)		(802,688	)

Effect of foreign exchange on cash		8,487			(1,525	)

Change in cash for the period		(7,388,303	)		(2,654,916	)

Cash, beginning of period		53,322,723			14,829,144

Cash, end of period	$	45,934,420		$	12,174,228

Supplemental Disclosure with respect to Cash Flows (Note 13)

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

ESSA PHARMA INC. CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited) (Expressed in United States dollars)

								Reserves
	Number of shares		Share capital			Obligation to issue shares		Share-based payments		Warrants			Cumulative translation adjustment			Deficit			Total

Balance, September 30, 2018		5,776,098	$	40,205,997		$	—	$	5,654,126	$	9,737,514		$	(2,076,479	)	$	(44,369,086	)	$	9,152,072
Pre-funded warrants exercised		535,000		2,140,000			—		—		(2,140,000	)		—			—			—
Share-based payments		—		—			—		336,217		—			—			—			336,217
Loss for the period		—		—			—		—		—			—			(2,710,767	)		(2,710,767	)

Balance, December 31, 2018		6,311,098	$	42,345,997		$	—	$	5,990,343	$	7,597,514		$	(2,076,479	)	$	(47,079,853	)	$	6,777,522
Acquisition of Realm		6,718,150		15,989,197			—		—		—			—			—			15,989,197
Financing		6,080,596		12,161,192			—		—		23,838,808			—			—			36,000,000
Share issuance costs		—		(901,298	)		—		—		(1,764,982	)		—			—			(2,666,280	)
Pre-funded warrants exercised		1,652,530		6,617,066			—		—		(6,615,996	)		—			—			1,070
Share-based payments		—		—			—		810,490		—			—			—			810,490
Loss for the period		—		—			—		—		—			—			(7,731,098	)		(7,731,098	)

Balance, September 30, 2019		20,762,374	$	76,212,154		$	—	$	6,800,833	$	23,055,344		$	(2,076,479	)	$	(54,810,951	)	$	49,180,901
Share issuance costs		—		(3,598	)		—		—		(7,054	)		—			—			(10,652	)
Funds received for warrant exercise		—		—			227,864		—		—			—			—			227,864
Share-based payments		—		—			—		1,253,621		—			—			—			1,253,621
Loss for the period		—		—			—		—		—			—			(4,622,211	)		(4,622,211	)

Balance, December 31, 2019		20,762,374	$	76,208,556		$	227,864	$	8,054,454	$	23,048,290		$	(2,076,479	)	$	(59,433,162	)	$	46,029,523

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

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

NATURE AND CONTINUANCE OF OPERATIONS

Nature and Continuance of Operations

ESSA Pharma Inc. (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 26^th Floor at 595 Burrard Street, Three Bentall Centre, Vancouver, BC, V7X 1L3. The Company is listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “EPIX”, and on the Toronto Venture Exchange (“TSX-V”) under the symbol “EPI”.

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 (the “NTD Technology”) which were the joint property of the British Columbia Cancer Agency and the University of British Columbia. As at December 31, 2019, no products are in commercial production or use.

Acquisition of Realm Therapeutics plc

On July 31, 2019, the Company acquired all of the issued and outstanding shares of Realm Therapeutics plc (“Realm”) pursuant to a Scheme of Arrangement as sanctioned on July 29, 2019 by the High Court of Justice in England and Wales (the “Realm Acquisition”) (Note 4).

Going Concern

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) assuming the Company will continue on a going-concern basis. The Company has incurred losses and negative operating cash flows since inception. The Company incurred a net loss of $4,622,211 during the period ended December 31, 2019 and has an accumulated deficit of $59,433,162. The ability of the Company to continue as a going concern in the long-term depends upon its ability to develop profitable operations and to continue to obtain adequate financing. As at December 31, 2019, the Company has not advanced its research into a commercially viable product. The Company’s continuation as a going concern is dependent upon the successful development of its NTD Technology to a commercial standard. During the year ended September 30, 2019, the Company completed a financing and acquired capital resources in the Realm Acquisition which are anticipated to provide funds to deliver on an operating plan through the next fiscal year and beyond.

The condensed consolidated interim financial statements do not include adjustments to amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue operations. The Company’s operations and research programs are dependent on the Company’s ability to receive financial support once the current resources have been depleted.

BASIS OF PRESENTATION

Statement of Compliance

These condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Accounting Standards (“IAS”) 34 ‘Interim Financial Reporting’ (“IAS 34”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

BASIS OF PRESENTATION (cont’d...)

Statement of Compliance (cont’d...)

The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the year ended September 30, 2019. The accounting policies and methods of computation applied by the Company in these condensed consolidated interim financial statements are the same as those applied in the Company’s annual financial statements except for those adopted as of October 1, 2019 as described in Note 3.

Basis of Presentation

The condensed consolidated interim financial statements have been prepared on a historical cost basis except for certain financial assets measured at fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

All amounts expressed in these 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.

Basis of Consolidation and Functional Currency

Subsidiaries

Subsidiaries are all entities over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully condensed consolidated interim from the date on which control is transferred to the Company until the date on which control ceases.

The accounts of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Inter-company transactions, balances and unrealized gains or losses on transactions are eliminated upon consolidation.

The condensed consolidated interim financial statements comprise the accounts of ESSA Pharma Inc., the parent company, and its wholly owned subsidiaries.

Functional Currency

The functional currency of an entity is the currency of the primary economic environment in which the entity operates.

The functional currency of the Company and its subsidiaries have been determined as follows:

	Country of Incorporation	Effective Interest	Functional Currency

ESSA Pharmaceuticals Corp.	USA	100%	US Dollar
Realm Therapeutics plc ⁽¹⁾	United Kingdom	100%	Pound Sterling
Realm Therapeutics Inc. ⁽¹⁾	USA	100%	US Dollar
⁽¹⁾ In the process of liquidation and dissolution as at December 31, 2019.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

BASIS OF PRESENTATION (cont’d...)

Estimates and Judgments

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual results may differ from these estimates and assumptions.

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. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions that have been made, relate to the following key estimates:

Intangible Assets - impairment

The application of the Company’s accounting policy for intangible assets expenditures requires judgment in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

Following initial recognition, the Company carries the value of intangible assets at cost less accumulated amortization and any accumulated impairment losses. Amortization is recorded on a straight-line basis based upon management’s estimate of the useful life and residual value. The estimates are reviewed at least annually and are updated if expectations change as a result of technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of the intangible assets resulting in a change in related amortization expense.

Product development and relocation grant

Pursuant to the terms of the Company’s grant from the Cancer Prevention Research Institute of Texas (“CPRIT”), the Company has met certain terms and conditions as detailed in Note 18 to qualify for the grant funding. The Company has therefore recognized in profit or loss, as recoveries of research and development expenditures, a portion of the grant that represents expenses the Company has incurred to date under the grant parameters. The expenses are subject to assessment by CPRIT for compliance with the grant regulations which may result in certain expenses being denied.

Income tax

The determination of income tax is inherently complex and requires making certain estimates and assumptions about future events. Changes in facts and circumstances as a result of income tax audits, reassessments, changes to corporate structure and associated domiciling, jurisprudence and any new legislation may result in an increase or decrease the provision for income taxes. The value of deferred tax assets is evaluated based on the probability of realization; the Company has assessed that it is improbable that such assets will be realized and has accordingly not recognized a value for deferred taxes.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

BASIS OF PRESENTATION (cont’d...)

Estimates and Judgments (cont’d...)

Derivative financial instruments

Certain warrants are treated as derivative financial liabilities. The estimated fair value, based on the Black-Scholes model, is adjusted on a quarterly basis with gains or losses recognized in the statement of loss and comprehensive loss. The Black-Scholes model is based on significant assumptions such as volatility, dividend yield, expected term and liquidity discounts (Note 10).

Functional Currency

The functional currency of the Company and its subsidiaries is the currency of their respective primary economic environment, and the Company reconsiders the functional currency if there is a change in events and conditions, which determined the primary economic environment. The functional currencies of the Company’s entities have been judged as detailed in Note 2.

Acquisition of Realm

The acquisition of Realm required management to make a judgment as to whether Realm constituted a business combination or an asset acquisition under the definitions of IFRS 3. The assessment required management to assess the inputs, processes and ability of Realm to produce outputs at the time of acquisition. Pursuant to the assessment, Realm was considered an asset acquisition (Note 4).

Share-based payments and compensation

The Company has applied estimates with respect to the valuation of shares issued for non-cash consideration. Shares are valued at the fair value of the equity instruments granted at the date the Company receives the goods or services.

The Company has applied estimates with respect to the valuation of pre-funded warrants issued for cash. Pre-funded warrants are valued at an amount equal to the cash proceeds received.

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the fair value of the underlying common shares, the expected life of the share option, volatility and dividend yield and making assumptions about them. The Company has made reference to prices quoted on the TSX-V and NASDAQ. The assumptions and models used for estimating fair value for share-based payment transactions are discussed in Note 12.

SIGNIFICANT ACCOUNTING POLICIES

IFRS 16, Leases

The Company adopted IFRS 16 - Leases (“IFRS 16”) on October 1, 2019. The objective of the new standard is to eliminate the classification of leases as either operating or financing leases for a lessee and report all leases on the statement of financial position. The only exemption to this will be for leases that are one year or less in duration or for leases of assets with low values. Under IFRS 16 a lessee is required to recognize a right-of-use asset, representing its right to use the underlying asset, and a lease liability, representing its obligations to make lease payments. IFRS 16 also changes the nature of expenses relating to leases, as lease expenses previously recognized for operating leases are replaced with depreciation expense on capitalized right-of-use assets and finance or interest expense for the corresponding lease liabilities associated with the capitalized right-of-use leased assets.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

IFRS 16, Leases (cont’d...)

The Company adopted IFRS 16 using the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption. For all leases, the lease liability was measured at October 1, 2019 as the present value of any future minimum lease payments discounted using the appropriate incremental borrowing rate. The associated right of use assets was measured at the amount equal to the lease liability on October 1, 2019.

The following leases accounting policies have been applied as of October 1, 2019 on adoption of IFRS 16:

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We assess whether the contract involves the use of an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if we have the right to direct the use of the asset.

As a lessee, we recognize a right-of-use asset, and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain measurements of the lease liability.

A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, the incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:

•

fixed payments, including in-substance fixed payments, less any lease incentives receivable;

•

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

•

amounts expected to be payable under a residual value guarantee;

•

exercise prices of purchase options if we are reasonably certain to exercise that option; and

•

payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in our estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option. Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit.

As part of the initial application of IFRS 16, we have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to profit on a straight-line basis over the lease term.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

SIGNIFICANT ACCOUNTING POLICIES (cont’d...)

IFRS 16, Leases (cont’d...)

Impact of transition to IFRS 16:

Effective October 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach and accordingly the information presented for 2019 has not been restated. The cumulative effect of initial application is recognized in deficit at October 1, 2019. Comparative amounts for 2019 remains as previously reported under IAS 17 and related interpretations.

On initial application, the Company has elected to record right-of-use assets based on the corresponding lease liabilities. Lease liabilities have been measured by discounting future lease payments at the incremental borrowing rate at October 1, 2019. The incremental borrowing rate applied was 12% per annum and represents the Company's best estimate of the rate of interest that it would expect to pay to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in the current economic environment.

As of the initial date of application of IFRS 16, the Company has an office lease. The remaining non-cancellable period of the lease was18 months. The application of IFRS 16 to leases, previously classified as operating leases under IAS 17, resulted in the recognition of right-of-use assets of $165,486 (Note 6) and lease liabilities (Note 8) with no net impact on deficit.

REALM ACQUISITION

On July 31, 2019, the Company acquired all of the issued and outstanding shares of Realm. Realm shareholders received a total of 6,718,150 common shares of the Company (“New ESSA Shares”) at a ratio of 0.05763 of a New ESSA Share per share of Realm (or 1.4409 New ESSA Shares for every one Realm ADS, representing 25 Realm shares). The fair value of the New ESSA Shares issued on July 31, 2019 was $15,989,197.

Realm is not considered to be a business under IFRS 3 Business Combinations; accordingly, the Realm Acquisition is accounted for as an asset acquisition.


Consideration:
6,718,150 common shares	$	15,989,197
Transaction costs		1,925,145

		17,914,342

Net assets of Realm acquired:
Cash		22,244,248
Receivables and other current assets		240,000
Accounts payable and accrued liabilities		(2,236,952	)

Total net assets		20,247,296

Gain on Realm Acquisition	$	2,332,954

Included in accounts payable and accrued liabilities as at December 31, 2019 is $nil (September 30, 2019 - $246,906) in costs associated with the termination of Realm’s office lease, which was completed in September 2019, and $20,000 (September 30, 2019 - $300,000) in taxes payable.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

PREPAID EXPENSES

	December 31, 2019		September 30, 2019

Prepaid insurance	$	382,063	$	524,257
Other deposits and prepaid expenses		89,747		91,228

Balance	$	471,810	$	615,485

RIGHT-OF-USE ASSETS

	Right-of-use assets (Office lease)

Cost
Balance, September 30, 2018 and 2019	$	—
Adoption of IFRS 16 (Note 3)		165,486

Balance, December 31, 2019	$	165,486

Accumulated Amortization
Balance, September 30, 2018 and 2019	$	—
Amortization expense		27,581

Balance, December 31, 2019	$	27,581

Net Book Value
Balance, September 30, 2019	$	—
Balance, December 31, 2019	$	137,905

Amortization expense has been recorded in “general and administrative expenses” in the statement of loss and comprehensive loss (Note 19).

INTANGIBLE ASSETS

	NTD Technology

Cost
Balance, September 30, 2018, 2019 and December 31, 2019	$	361,284
Accumulated Amortization
Balance, September 30, 2018	$	142,256
Amortization expense		18,297
Balance, September 30, 2019	$	160,553
Amortization expense		4,574
Balance, December 31, 2019	$	165,127

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

INTANGIBLE ASSETS (cont’d...)

Amortization expense has been recorded in “general and administrative expenses” in the statement of loss and comprehensive loss (Note 19).

The NTD Technology is held under a license agreement signed in fiscal 2010 (the “License Agreement”). As consideration for the License Agreement, the Company issued common shares of the Company. The License Agreement contains an annual royalty as a percentage of annual net revenue and a percentage of any annual sublicensing revenue earned with respect to the NTD Technology. The License Agreement stipulates annual minimum advance royalty payments of C$85,000. In addition, there are certain milestone payments for the first compound, to be paid in stages as to C$50,000 at the start of a Phase II clinical trial, C$900,000 at the start of a Phase III clinical trial, C$1,450,000 at application for marketing approval, and with further milestone payments on the second and additional compounds.

LEASE LIABILITY

Pursuant to the adoption of IFRS 16 (Note 3), the Company has recognized the impact of off-balance lease obligations as of September 30, 2019:

Reconciliation of lease liabilities	October 1, 2019

Off-balance sheet lease obligations as of September 30, 2019	$	179,958
Discounting		(14,472	)

Lease liabilities on application of IFRS 16 as of October 1, 2019	$	165,486

The Company has applied an incremental borrowing rate of 12%.


Lease liabilities

Balance, October 1, 2019	$	165,486
Finance expense		4,422
Lease payments		(29,405	)

Balance, December 31, 2019	$	140,503

Current balance (less than one year)		113,890
Long-term balance		26,613

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

LONG-TERM DEBT

On November 18, 2016, Silicon Valley Bank (“SVB”) entered into a $10,000,000 capital term loan facility agreement (“SVB Term Loan”) with the Company. The Company drew down $8,000,000 from the SVB Term Loan. The option to draw an additional $2,000,000 lapsed on July 31, 2017.

The SVB Term Loan bore interest at the Wall Street Journal Prime Rate (“WSJ Prime Rate”) plus 3% per annum and with a maturity date of September 1, 2020. The SVB Term Loan required a final payment of 8.6% of the amount advanced (“Final Payment”), due upon the earlier of the maturity or termination of the SVB Term Loan. The Company was required to make interest only payments until December 31, 2017. The SVB Term Loan contained a voluntary prepayment option whereby the principal amount can be prepaid in whole, or in part, for a fixed fee if a prepayment is made on or before the second anniversary of the SVB Term Loan. In the period ended December 31, 2019, the Company repaid the SVB Term Loan in full totalling $3,652,471, comprising $2,953,968 in principal, $10,503 in accrued interest, and the Final Payment of $688,000.

In connection with the $8,000,000 draw, the Company granted an aggregate of 7,477 warrants to SVB (the “SVB Warrants”), exercisable at a price of $42.80 per share for a period of seven years until November 18, 2023, with an initial fair value of $167,022, which was recognized as a derivative liability (Note 10). The Company incurred total additional transaction costs of $220,898 related to the SVB Term Loan and First Amendment. The transaction costs and Final Payment were amortized into profit and loss over the estimated term of the facility, being the legal term, at an effective interest rate of 12.6% (2018 - 12.15%).


	SVB Term Loan

Balance, September 30, 2018	$	6,316,963

Principal repaid		(2,808,823	)
Interest paid		(401,929	)
Accretion		602,744

Balance, September 30, 2019	$	3,708,955

Principal repaid		(3,199,799	)
Interest and financing costs paid		(720,235	)
Accretion		211,079

Balance, December 31, 2019	$	—

10.

DERIVATIVE LIABILITIES

7-Year Warrants

In January 2016, the Company issued units pursuant to a financing which included 227,273 cash and cashless exercise warrants exercisable until January 12, 2023 (the “7-Year Warrants”). The 7-Year Warrants have an exercise price of $66.00 per common share. The holders of the 7-Year Warrants may elect, in lieu of exercising the 7-Year Warrants for cash, a cashless exercise option, in whole or in part, to receive common shares equal to the fair value of the 7-Year Warrants based on the number of 7-Year Warrants to be exercised multiplied by a ten-day weighted average market price less the exercise price with the difference divided by the weighted average market price. If a warrant holder exercises this option, there will be variability in the number of shares issued per 7-Year Warrant.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

10.

DERIVATIVE LIABILITIES (cont’d...)

7-Year Warrants (cont’d...)

Additionally, the 7-Year Warrants contain provisions which may require the Company to redeem the 7-Year Warrants, at the option of the holder, in the event of a major transaction, such as a change of control or sale of the Company’s assets (“Major Transaction”). The redemption value would be subject to a Black-Scholes valuation at the time of exercise. In the event the consideration for a Major Transaction payable to the common shareholders is in cash, in whole or in part, the redemption of the 7-Year Warrants would be made in cash pro-rata to the composition of the consideration. The potential for a cash settlement for the 7-Year Warrants, in accordance with IFRS, requires the 7-Year Warrants to be treated as financial liabilities measured at fair value through profit or loss.

The 7-Year Warrants are not traded in an active market. A liquidity discount of 20% has been applied to the per warrant fair value to account for the lack of marketability of the instruments. As at December 31, 2019, the 7-Year Warrants derivative liability had a fair value of $73,153 (September 30, 2019 - $16,521). The Company has recorded the resulting change in fair value of $56,632 (2018 - $11,338) in the statement of loss and comprehensive loss.

SVB Warrants

In connection with the $8,000,000 draw on the SVB Term Loan (Note 9), the Company granted an aggregate of 7,477 warrants to SVB (the “SVB Warrants”), exercisable at a price of $42.80 per share for a period of seven years until November 18, 2023. The holders of the SVB Warrants may elect, in lieu of exercising the SVB Warrants for cash, a cashless exercise option, in whole or in part, to receive common shares equal to the fair value of the SVB Warrants based on the number of SVB Warrants to be exercised multiplied by a five-day weighted average market price less the exercise price with the difference divided by the weighted average market price. If a warrant holder exercises this option, there will be variability in the number of shares issued per SVB Warrant.

Additionally, the SVB Warrants contain provisions which require the Company to redeem the SVB Warrants, on a cashless basis, at the option of the holder, in the event of a major transaction, such as a change of control or sale of the Company’s assets (“Acquisition”) where the Company’s shareholders receive cash or shares or a combination thereof, and the five-day weighted average market price is greater than the exercise price.

The SVB Warrants are not traded in an active market. A liquidity discount of 20% has been applied to the per warrant fair value to account for the lack of marketability of the instruments. As at December 31, 2019, the SVB Warrants derivative liability had a fair value of $6,024 (September 30, 2019 - $1,659). The Company has recorded the resulting change in fair value of $4,365 (2018 - $1,212) in the statement of loss and comprehensive loss.

Valuation

The Company uses the Black-Scholes option pricing model to estimate fair value. The following weighted average assumptions were used to estimate the fair value of the derivative warrant liabilities on September 30, 2019 and December 31, 2019:


	December 31, 2019			September 30, 2019

Risk-free interest rate		1.69	%		1.55	%
Expected life		3.06 years			3.31 years
Expected annualized volatility		82.2	%		74.7	%
Dividend		—			—

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

10.

DERIVATIVE LIABILITIES (cont’d...)

Sensitivity

The derivative warrants are a recurring Level 3 fair value measurement. The key level 3 inputs used by management to determine the fair value are the market price and expected volatility. If the market price were to increase by a factor of 10% this would increase the obligation by approximately $18,239 as at December 31, 2019. If the market price were to decrease by a factor of 10% this would decrease the obligation by approximately $16,485 as at December 31, 2019. If the volatility were to increase by 10%, this would increase the obligation by approximately $41,166 as at December 31, 2019. If the volatility were to decrease by 10%, this would decrease the obligation by approximately $32,718 as at December 31, 2019.

The following table is a continuity schedule of changes to the Company’s derivative liabilities:


	Total

Balance, September 30, 2018	$	19,648
Change in fair value		(1,469	)

Balance, September 30, 2019	$	18,179
Change in fair value		60,997

Balance, December 31, 2019	$	79,176

Derivatives with expected life of less than one year	$	—
Derivatives with expected life greater than one year	$	79,176

11.

SHAREHOLDERS’ EQUITY

Authorized

Unlimited common shares, without par value.

Unlimited preferred shares, without par value.

August 2019 Financing

On August 27, 2019, the Company closed a public offering of equity securities of the Company in Canada and a concurrent private placement of equity securities in the United States (the “August 2019 Financing”). The Company issued a total of 6,080,596 common shares and 11,919,404 pre-funded warrants in lieu of common shares of the Company at a price of $2.00 per security for aggregate gross proceeds of $36,000,000. Each pre-funded warrant entitles the holder thereof to acquire one common share at a nominal exercise price for a period of five years. In connection with the August 2019 Financing, the Company paid cash commissions of $1,978,770 and incurred other financing costs of $687,510.

Realm Acquisition

On July 31, 2019, the Company issued 6,718,150 shares in relation to the Realm Acquisition (Note 4).

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

11.

SHAREHOLDERS’ EQUITY (cont’d...)

Nomination Rights

In connection with a January 2016 private placement of 227,273 Units, a Unit consisting of one common share, one 7-year warrant and one-half of one 2-year warrant, of the Company, Clarus Lifesciences III, L.P. (“Clarus”) acquired 106,061 common shares. Clarus is entitled to nominate two directors to the board of directors of the Company, one of which must be an independent director and preapproved by the Company. These nomination rights will continue for so long as Clarus holds greater than or equal to 53,030 common shares, subject to adjustment in certain circumstances.

12.

RESERVES

Equity incentive plans

Stock option plan

The Company has adopted a Stock Option Plan consistent with the policies and rules of the TSX-V and NASDAQ. Pursuant to the Stock Option Plan, options may be granted with expiry terms of up to 10 years, and vesting criteria and periods are approved by the Board of Directors at its discretion. The options issued under the Stock Option Plan are accounted for as equity-settled share-based payments.

Restricted share units plan

The Company has adopted a Restricted Share Unit Plan (“RSU Plan”) consistent with the policies and rules of the TSX-V and NASDAQ. Pursuant to the RSU Plan, RSUs may be granted with vesting criteria and periods are approved by the Board of Directors at its discretion. The RSUs issued under the RSU Plan may be accounted for as either equity-settled or cash-settled share-based payments. At December 31, 2019, there are no RSUs outstanding.

As at December 31, 2019 the Stock Option Plan and RSU Plan have a combined maximum of 2,563,991 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. A Purchase Right will have a purchase period of between three and 24 months. Purchase Rights are administered by the Board of Directors within the terms and limitations of employee participation. As at December 31, 2019, there are no Purchase Rights outstanding.

As at December 31, 2019, the ESPP has a maximum of 284,447 common shares reserved for issuance.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

12.

RESERVES (cont’d...)

Stock options

Stock option transactions are summarized as follows:

	Number of Options			Weighted Average Exercise Price*

Balance, September 30, 2018		900,459		$	4.80
Options granted		255,000			3.77
Options expired/forfeited		(32,998	)		(4.10	)

Balance, September 30, 2019		1,122,461		$	4.59
Options granted		4,218,000			3.31
Options expired/forfeited		(28,961	)		(30.30	)

Balance outstanding, December 31, 2019		5,311,500		$	3.43
Balance exercisable, December 31, 2019		680,716		$	3.70

*Options exercisable in Canadian dollars as at December 31, 2019 are translated at current rates to reflect the current weighted average exercise price in US dollars for all outstanding options.

At December 31, 2019, options were outstanding enabling holders to acquire common shares as follows:

Exercise price			Number of options		Weighted average remaining contractual life (years)

	$	2.20		5,000		9.45
	$	3.23		3,953,000		9.72
	$	3.58		12,000		0.24
	$	3.585		40,000		9.80
	$	3.81		193,000		8.90
	$	4.00		552,500		7.97
	$	4.67		225,000		9.84
	C$	4.90		286,000		7.81
	C$	5.06		45,000		9.12
				5,311,500		9.38

Share-based compensation

During the period ended December 31, 2019, the Company granted a total of 4,218,000 (2018 - 12,000) stock options with a weighted average fair value of $2.63 per option (2018 - $3.22). The Company recognized share-based payments expense for options granted and vesting, net of recoveries on cancellations of unvested options, during the periods ended December 31, 2019 and 2018 with allocations to its functional expense as follows:


	2019		2018

Research and development expense (Note 19)	$	152,406	$	90,052
General and administrative (Note 19)		1,101,215		246,165

	$	1,253,621	$	336,217

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

12.

RESERVES (cont’d...)

Share-based compensation (cont’d...)

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


	2019		2018

Risk-free interest rate		1.54%		2.89%
Expected life of options		10.00 years		10.00 years
Expected annualized volatility		77.00%		84.10%
Dividend		—		—

Warrants

Warrant transactions are summarized as follows:

	Number of Warrants			Weighted Average Exercise Price

Balance, September 30, 2018		2,663,937		$	6.13
Warrants granted		11,919,404			0.0001
Warrants exercised		(2,188,999	)		0.002
Warrants expired		(1,250	)		31.17

Balance outstanding and exercisable,
September 30, 2019 and December 31, 2019		12,393,092		$	1.31

At December 31, 2019, warrants were outstanding enabling holders to acquire common shares as follows:

Number of Warrants			Exercise Price		Expiry Date

	227,273	⁽¹⁾	$	66.00	January 14, 2023
	7,477	⁽¹⁾		42.80	November 18, 2023
	175,938	⁽²⁾		4.00	January 9, 2023
	63,000	⁽³⁾		4.00	January 16, 2023
	11,919,404			0.0001	August 23, 2024
	12,393,092

⁽¹⁾

Detailed terms are included in Note 10.

⁽²⁾

41,215 exercised subsequent to December 31, 2019 (Note 20).

⁽³⁾

15,750 exercised subsequent to December 31, 2019 (Note 20).

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

13.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

There were no significant non-cash financing or investing activities during the three months ended December 31, 2019.

During the three months ended December 31, 2018, the Company issued 535,000 common shares upon the exercise of 535,000 pre-funded warrants at a value of $2,140,000.

14.

RELATED PARTY TRANSACTIONS

Key management personnel of the Company include the President and Chief Executive Officer (“CEO”), Executive VP and Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”), former Chief Technical Officer, former Chief Scientific Officer, Chief Medical Officer (“CMO”), and Directors of the Company. Compensation paid to key management personnel is as follows:


	2019		2018

Salaries, consulting fees, and director fees	$	472,777	$	397,897
Share-based payments, net of cancellations ^(a)		1,032,732		286,806
Total compensation	$	1,505,509	$	684,703

^(a)

Share-based payments to related parties represents the fair value of options granted and vested in the period to key management personnel net of expense reversed for options cancelled before vesting.

During the three months ended December 31, 2019, the Company granted 3,330,000 (2018 - 12,000) options to key management personnel. The vesting of these options and options granted to key management personnel in prior periods were recorded as share-based payments expense in the statement of loss and comprehensive loss at a value of $1,032,732 (2018 - $286,806).

Included in accounts payable and accrued liabilities at December 31, 2019 is $85,600 (September 30, 2019 - $108,331) due to related parties with respect to key management personnel compensation and expense reimbursements. Amounts due to related parties are non-interest bearing, with no fixed terms of repayment.

Commitments

The CEO is entitled to a payment of one year of base salary upon termination without cause. Additionally, the CEO is entitled to 18 months of salary if termination without cause occurs after a change of control event or within 60 days prior to a change of control event where such event was under consideration at the time of termination. The CFO, COO and CMO are entitled to a payment of one year of base salary upon termination without cause. Additionally, the CFO, COO and CMO are entitled to 18 months of salary if termination without cause occurs within 18 months after a change of control event.

Stock options held by the CEO, CFO, COO, and CMO vest immediately upon a change of control.

15.

SEGMENTED INFORMATION

The Company works in one industry being the development of small molecule drugs for prostate cancer. The Company’s right-of-use assets are located in the USA.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

16.

CAPITAL MANAGEMENT

The Company considers its capital to include working capital, and the components of shareholders’ equity. The Company extinguished outstanding long-term debt in the period ended December 31, 2019. The Company determined to exercise the voluntary prepayment option (Note 9). The Company monitors its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may issue new equity if available on favorable terms. Future financings are dependent on market conditions and the ability to identify sources of investment. There can be no assurance the Company will be able to raise funds in the future.

There were no changes to the Company’s approach to capital management during the period ended December 31, 2019. The decision to extinguish the long-term debt was made within the Company’ capital management strategy. As at December 31, 2019, the Company is not subject to externally imposed capital requirements.

17.

FINANCIAL INSTRUMENTS AND RISK

The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, long-term debt and derivative liabilities. The fair value of cash, receivables and accounts payable and accrued liabilities approximates their carrying values due to their short term to maturity. The derivative liabilities are measured using level 3 inputs (Note 10).

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of judgement, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

Financial risk factors

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and receivables. The Company’s receivables is materially the balance remaining on the CPRIT Grant (Note 18). The Company limits its exposure to credit loss by placing its cash with major financial institutions. Amounts due from government agencies are considered to have minimal credit risk.

Liquidity risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at December 31, 2019, the Company had a working capital of $45,527,165. The Company does not generate revenue and will be reliant on external financing to fund operations. Debt and equity financing are dependent on market conditions and may not be available on favorable terms.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, and foreign exchange rates.

(a)

Interest rate risk

As at December 31, 2019, the Company has cash balances which are interest bearing. Interest income is not significant to the Company’s projected operational budget and related interest rate fluctuations are not significant to the Company’s risk assessment.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

17.

FINANCIAL INSTRUMENTS AND RISK (cont’d...)

Financial risk factors (cont’d...)

Market risk (cont’d...)

(b)

Foreign currency risk

The Company’s foreign currency risk exposure relates to net monetary assets denominated in Canadian dollars. The Company maintains its cash in US dollars and converts on an as needed basis to discharge Canadian denominated expenditures. A 10% change in the foreign exchange rate between the Canadian and U.S. dollar would result in a fluctuation of $35,360 in the net loss realized for the period. The Company does not currently engage in hedging activities.

(c)

Price risk

The Company is exposed to price risk with respect to equity prices. The Company closely monitors individual equity movements, and the stock market to determine the appropriate course of action to be taken by the Company.

18.

COMMITMENTS

Product Development and Relocation Grant

In February 2014 the Company received notice that it had been awarded a product development and relocation grant by CPRIT whereby the Company is eligible to receive up to $12,000,000 on eligible expenditures over a three-year period related to the development of the Company’s androgen receptor n-terminus blocker program for prostate cancer. The funding under CPRIT is subject to a number of conditions including negotiation and execution of an award contract which details the milestones that must be met to release the tranched CPRIT funding, proof the Company has raised the 50% matching funds to release CPRIT monies, and relocation of the project to the State of Texas such that the substantial functions of the Company related to the project grant are in Texas and the Company uses Texas-based subcontractor and collaborators wherever possible.

As at September 30, 2016, the Company had received the first two tranches of the CPRIT Grant, totalling $6,578,000, which have been recognized as research and development recoveries in the statements of loss and comprehensive loss over fiscal years 2014, 2015, and 2016. During the year ended September 30, 2017, the Company received $5,192,799, representing a partial payment of the third and final tranche of the grant of $5,422,000. The remaining balance of $229,201 has been recorded as a receivable as at September 30, 2018, 2019 and December 31, 2019.

If the Company is found to have used any grant proceeds for purposes other than intended, is in violation of the terms of the grant, or fails to maintain the required level of operations in the State of Texas for three years following the final payment of grant funds, then the Company could be required to repay any grant proceeds received.

Under the terms of the grant, the Company is also required to pay a royalty to CPRIT, comprised of 4% of revenues the Company receives from sale of commercial product or commercial service, until aggregate royalty payments equal $24,000,000, and 2% of revenues thereafter. The Company has the option to terminate the grant agreement by paying a one-time, non-refundable buyout fee, based on certain factors including the grant proceeds, and the number of months between the termination date and the buyout fee payment date.

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

18.

COMMITMENTS (cont’d...)

Product Development and Relocation Grant (cont’d...)

The Company has the following obligations over the next five years:

Contractual obligations

2020

2021

2022

2023

2024

Minimum annual royalty per License

Agreement (Note 7)

C$ 85,000

Advisory Contract

In April 2019 the Company executed an Engagement Letter with Oppenheimer & Co. Inc. (“Oppenheimer”), an investment bank, to retain their services to act as its lead financial advisor for which it obtained a percentage of funds raised on successful completion of the financing in August 2019. Oppenheimer would receive compensation on certain capital transactions while the Engagement Letter is in effect. The Company may terminate the agreement on 30 days’ written notice. Oppenheimer retains a right of first refusal as lead agent on all future financings occurring up to 12 months following the termination of the agreement.

19.

EXPENSES BY NATURE

Research and development expenses include the following major expenses by nature:


For the three months ended December 31	2019		2018

Clinical	$	101,143	$	—
Consulting		73,596		74,331
Legal patents and license fees		237,700		273,536
Manufacturing		847,190		1,312
Other		41,262		6,240
Preclinical		773,171		657,861
Salaries and benefits		345,198		178,403
Share-based payments (Note 12)		152,406		90,052
Travel		15,482		4,588

Total	$	2,587,148	$	1,286,323

ESSA PHARMA INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

(Expressed in United States dollars)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2019 AND 2018

19.

EXPENSES BY NATURE (cont’d...)

General and administrative expenses include the following major expenses by nature:


For the three months ended December 31	2019		2018

Amortization	$	32,155	$	4,574
Consulting and subcontractor fees		32,805		26,165
Director fees		92,500		63,000
Insurance		133,595		114,278
Investor relations		57,739		41,287
Office, IT and communications		50,232		14,526
Professional fees		195,118		249,473
Regulatory fees and transfer agent		10,320		16,995
Rent		15,644		42,915
Salaries and benefits		376,363		371,309
Share-based payments (Note 12)		1,101,215		246,165
Travel and entertainment		46,054		56,421

Total	$	2,143,740	$	1,247,108

20.

SUBSEQUENT EVENTS

Subsequent to December 31, 2019, the Company issued 61,965 common shares for 61,965 warrants exercised for gross proceeds of $247,860, of which $227,864 had been recorded as an obligation to issue shares as at December 31, 2019.

NTD

Technology

Net Book Value

Balance, September 30, 2019

Balance, December 31, 2019